Quest into the Unknown
We hope that you have found this Baedeker guide to some of the new alternative investments to be informative and understandable. Whether or not you decide to invest in them, by now you should have more knowledge to back your course of action. You will also be less mystified the next time someone brings this stuff up at the water cooler or on business TV, and less inclined to invest in something you shouldn’t. The last thing Wall Street wants is an informed consumer. Now that person is you.
The financial services industry has been flat-footed in its response to the financial crisis of 2008. Their business model is to sell stocks when the market is good and then hide under the desk when they come tumbling down. Then, repeat. They are very good at selling stocks and stock funds, as well as any fancy products that have a high commission or internal fee structure. That is their comfort zone—what they know how to do, and what they do.
However, not everyone has been asleep. Some very smart people have been quietly at work trying to intelligently design a better investment mousetrap. Financial instruments are being engineered to systematically diversify risk and to expose people to sources of risk and return beyond those of stocks and bonds. Important investment parameters are being actively managed in real time, parameters such as risk exposure, total volatility and the correlation to equity markets.
The new products are more complicated than a stock ...