Alternative Answers: The Class Divide in Investing, and How You Can Close It

Bob Rice

June 05, 2013

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"Harvard's biggest single financial bet is on timber, not stocks. Yale has just 6% of its endowment in US equities; instead, it's long "absolute return," "private equity," and real assets. Each is up more than100% over the past decade. In the meantime, typical investors have, at best, treaded water. And that's no anomaly. In 7 of the 11 decades since 1900, the classic 60/40, stock/bond portfolio has returned an average real return of a whopping... 1%. Yes, those other four decades were big winners; but then those gains were walloped by the kinds of big crashes that are only becoming more frequent. Fact is, a class system has developed among investors over the past few decades. Elite money managers have used a proprietary set of tools to ride economic cycles up, but also to avoid big losses during downturns. Meanwhile, the rest of us all thought that "investing" was synonymous with simply buying stocks and bonds, with maybe a bit of real estate tossed in. [...] Fortunately, times have changed—even if most people still don't know it. Institutional-strength, non-traditional options are now available to almost all investors, and the mass affluent have an especially rich menu from which to choose. [...] Let's take a look at a quick look at how some of these "alternative" strategies both make money, and avoid losing it."

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