How to Survive a Recession

LESSON 28: Invest in Alternative Assets

Diversifying your investment returns is a priority to survive a recession. Alternative assets are non-standard investments whose returns occur at different times than the equity or bond markets. For example:

Options strategies can make profits when market volatility rises or drops, regardless of price direction.

Arbitrage of one security against another, making profit from changes in the spread between two prices.

Leveraged buyout and mergers and acquisitions generate profits from large business transactions.

Foreign currency strategies attempt to profit from changes in the health of different countries’ financial conditions.

Short selling generates profits from falling markets.

Commodities such as wheat, gold and oil are dependent on world demand for food, precious metals, and energy rather than capital markets.

Funds of funds invest in other hedge funds to take advantage of market opportunities as they change over time.

Private equity, venture capital and angel investing profit from the long term growth of new business and technology ideas.

Many of these strategies are available to retail investors through listed exchange traded funds (ETFs) which can be purchased (or sold short) in a standard stock trading account. Options trading must be done in a brokerage account designated for that purpose. A foreign currency or commodity futures account are required for arbitrage, forex, and commodity strategies.

If you are a high net worth individual or manage a significant amount of business assets, hedge funds, funds of funds, private equity, venture capital, and angel investing are viable alternatives to achieve diversification.