Alternative Investments

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Always passive
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Alternative Investments

Post by Always passive »

Given that bonds are extremely unattractive and equities, specially in the US, may be highly valued, I wonder if anyone has been exploring alternative investments, real estate, gold, commodities, others. Are there any funds or ETFs that are worth looking at?Can anyone care to comment?
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ruralavalon
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Re: Alternative Investments

Post by ruralavalon »

Always passive wrote: Fri Sep 18, 2020 11:09 am Given that bonds are extremely unattractive and equities, specially in the US, may be highly valued, I wonder if anyone has been exploring alternative investments, real estate, gold, commodities, others. Are there any funds or ETFs that are worth looking at?Can anyone care to comment?
I am not exploring alternatives like gold, real estate, or commodities.

I suggest reading Larry Swedroe's book "The Only Guide to Alternative Investments You'll Ever Need: The Good, the Flawed, the Bad, and the Ugly".

In the past I have used Vanguard Real Estate Index Fund Admiral Shares (VGSLX) and Vanguard Global Capital Cycles Fund (VGPMX) (when it was a fund of stocks of companies in the mining industry). Those are stock funds, were part of my stock allocation, and in my opinion are not suitable as a replacement for a bond fund.
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alex_686
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Re: Alternative Investments

Post by alex_686 »

I am afraid that there are no easy answers.

There are problems with alternative assets. Many have high valuations like stocks and bonds. Most have a strong skill component involved - which I think is the strongest strike against them, and I say that as somebody who has rental property. Then you need to consider the tax and liquidity issues.
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Robot Monster
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Re: Alternative Investments

Post by Robot Monster »

Always passive wrote: Fri Sep 18, 2020 11:09 am Given that bonds are extremely unattractive...
How about some juicy high yield?

"We have turned neutral on credit on a strategic basis because we see investment grade (IG) spreads offering less compensation for any increase in default risks. We still like high yield for income. On a tactical horizon, we strongly prefer high yield for its income and more room for spread tightening. We are neutral on IG and underweight emerging market debt."
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KingRiggs
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Re: Alternative Investments

Post by KingRiggs »

Always passive wrote: Fri Sep 18, 2020 11:09 am Given that bonds are extremely unattractive
If you find your bonds unattractive, I'm happy to take them off you hands... :sharebeer
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Wiggums
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Re: Alternative Investments

Post by Wiggums »

I am not exploring alternatives like gold, real estate, or commodities.

Equities has served me well my entire working like.
My strategy has always been to buy weekly, because I cannot predict the market.

More fiscal support and a vaccine will lessen the headwinds.

I hope this helps.
asif408
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Re: Alternative Investments

Post by asif408 »

That's easy, 100% EM Value is the way to go: https://www.gmo.com/americas/research-l ... gust-2020/
gougou
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Re: Alternative Investments

Post by gougou »

MLPs that own oil/gas pipelines. Look up EPD, ET, MMP etc. Or MLPX if you like ETF.

REITs are also pretty good but their income are a bit lower.
Last edited by gougou on Fri Sep 18, 2020 2:25 pm, edited 1 time in total.
backpacker61
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Re: Alternative Investments

Post by backpacker61 »

I have a tiny stake in a Business Development Corporation (BDC).

https://www.bogleheads.org/wiki/Busines ... nt_company

You could also evaluate some Closed End Funds that make similar investments.

https://www.bogleheads.org/wiki/Closed-end_funds

Realize these are not low risk. It's beneficial to own them in tax-advantaged accounts (except for CEF's that invest in muni bonds).
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Re: Alternative Investments

Post by nisiprius »

Whenever traditional securities (stocks and bonds) have a rough patch, it creates an opportunity for people to market stuff that most investors don't buy at other times. There is often a good deal of information asymmetry--the people buying the stuff aren't so familiar with it and know less than the people selling it. So, watch out.

Bias alert: I personally think "liquid alts" are pretty much a bunch of hooey. I won't try to convince you that they are hooey, but I hope I can convince you to be careful, check for yourself, and don't be too quick to assume that something must be good just because you are seeing articles about it everywhere.

Point #1: Where are the liquid alternative shareholders' yachts? This Morningstar article reviews the track record of liquid alts since 2009 and concludes that
Since March 2009, investors have collectively paid $1 billion more in fees to liquid alternative mutual funds than what they’ve gained in return.
Point #2: "Commodities." Very few exchange-traded products actually invest in commodities (they would need to be prepared to take delivery and store them somewhere). Most of them actually invest in "collateralized commodity futures." The difference is important. In 2010, Bloomberg reported on Amber Waves of Pain (turn off Javascript to avoid paywall). The centerpiece was an investor who was absolutely sure that the price of oil would go up.
so he called his Merrill broker and asked about the U.S. Oil Fund (USO), an ETF designed to track the price of light, sweet crude... [He] had him buy about $10,000 of USO. What happened next didn't make sense. Wolf watched oil go up as predicted, yet USO kept going down.
Point #3: Commodities again. In June 2004, an influential paper, Facts and Fantasies about Commodity Futures convinced many people that retirement savings portfolios should have an allocation to commodity futures. Fidelity included a 10% allocation in its flagship target-date funds. Here is how one of the older and most-respected "commodity" funds did following publication of that paper:
Source

Image

Here is how it worked out for Fidelity: Fidelity retirement funds take multiyear hit from commodities bet

Point #4: Managed futures, multialternatives, etc. In a posting on Unimpressive category averages of managed futures, multialternative, market neutral, etc. I found that a money market mutual fund, with virtually zero volatility or other risk, had beaten the average managed futures fund, didn't beat but almost tied the average multialternatives fund, beaten the average commodities fund, and beaten the average market neutral fund.

Point #5: the infamous and still-controversial QSPIX (and, same fund, different share class, QSPRX). I say "infamous" because the AQR Style Premia Alternative Fund was warmly recommended by Larry Swedroe as an addition to traditional portfolios and got a lot of spirited discussion in the forum. I don't want to discuss it in detail here except to say that rather than being an investment in a single alternative, it is sophisticated piece of financial engineering involving multiple assets and multiple risk factors.

Source

Image
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jaybee9
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Re: Alternative Investments

Post by jaybee9 »

I was surprised to see Stable Value Funds included in the list given in the book description. I guess that makes sense. But junk bonds as well?
Target2019
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Re: Alternative Investments

Post by Target2019 »

Always passive wrote: Fri Sep 18, 2020 11:09 am Given that bonds are extremely unattractive and equities, specially in the US, may be highly valued, I wonder if anyone has been exploring alternative investments, real estate, gold, commodities, others. Are there any funds or ETFs that are worth looking at?Can anyone care to comment?
For alternative investments I went with Blackstone (BX). BX is not in the S&P500, and is less than half the size of Blackrock (BLK).

Alternative investments includes PE (Private Equity) and VC (Venture Capital).
https://www.investopedia.com/terms/a/al ... stment.asp
https://en.wikipedia.org/wiki/Alternative_investment

Just mentioning this, and not recommending it. It works for us, but may not pan out for others.
jaybee9
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Re: Alternative Investments

Post by jaybee9 »

Art "investing" seems to be very un-Bogleheadish

https://www.gsb.stanford.edu/insights/r ... investment

https://www.artsy.net/article/artsy-edi ... investment

"I would conservatively estimate that a substantial majority would realize less than they cost to acquire if they were to be liquidated, given the enormous transactional costs associated with buying and selling art."

and

"Building an alternative model that does account for this bias, the paper found that the average annual rate of return for paintings in their sample drops from 8.7 percent to 6.3 percent, and the corresponding Sharpe Ratio (a measure of risk vs. return) drops from a robust 2.7 percent to a meagre 1.1 percent. They conclude that a well-balanced investment portfolio, taking into account this sample selection bias when compared to other asset classes like stocks and bonds, would allocate exactly 0 percent of their assets to paintings as a category. While paintings may have a modest annual adjusted return of 6.3 percent between hammer prices, according to this model, the enormous additional transactional costs further erode this picture to the point that art as an investment vehicle may seem a contradiction in terms."
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Re: Alternative Investments

Post by nisiprius »

jaybee9 wrote: Fri Sep 18, 2020 2:56 pm
I was surprised to see Stable Value Funds included in the list given in the book description. I guess that makes sense. But junk bonds as well?
From the table of contents (not saying I agree, just reporting their categorization):

The good:
  • Real estate
  • Inflation-protected securities [TIPS]
  • Commodities
  • International equities
  • Fixed annuities
  • Stable-value funds
The flawed:
  • High yield (junk) bonds
  • Private equity
  • Covered calls
  • Socially responsible mutual funds [now often called "ESG funds"]
  • Precious metals equities
  • Preferred stocks
  • Convertible bonds
  • Emerging market bonds
The bad:
  • Hedge funds
  • Leveraged buyouts
  • Variable annuities
The ugly:
  • Equity-indexed annuities [now often called "fixed indexed annuities"]
  • Structured investment products
  • Leveraged funds
Last edited by nisiprius on Sat Sep 19, 2020 5:54 am, edited 1 time in total.
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jaybee9
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Re: Alternative Investments

Post by jaybee9 »

nisiprius wrote: Fri Sep 18, 2020 6:01 pm
jaybee9 wrote: Fri Sep 18, 2020 2:56 pm
I was surprised to see Stable Value Funds included in the list given in the book description. I guess that makes sense. But junk bonds as well?
From the table of contents (not saying I agree, just reporting their categorization):

The good:
  • Real estate
  • Inflation-protected securities [TIPS]
  • Commodities
  • International equities
  • Fixed annuities
  • Stable-value funds
The flawed:
  • High yield (junk) bonds
  • Private equity
  • Covered calls
  • Socially responsible mutual funds [now often called "ESG funds"]
  • Preferred stocks
  • Convertible bonds
  • Emerging market bonds
The bad:
  • Hedge funds
  • Leveraged buyouts
  • Variable annuities
The ugly:
  • Equity-indexed annuities [now often called "fixed indexed annuities"]
  • Structured investment products
  • Leveraged funds
Thanks. No gold? I assume closed-end funds are classified under leveraged funds?
unbiased
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Re: Alternative Investments

Post by unbiased »

Hey alwayspassive, let us know your rationale for the alternatives. If you're looking for INCOME, that's one thing. BUT, if it's for negative correlation with your equity holdings to hedge your portfolio, that's another.

I've explored them quite a bit, and dibbled and dabbled over the years. Historically, the best "hedge" against equities are LT treasuries. Not gold, bitcoin, managed futures, or anything else. Those "assets" may/may not have negative correlation when you need it.

I agree it's a valid question whether the negative correlation will hold in an environment of ultra-low rates. I tend to think it won't be AS strong, but likely still offer some help.

If you really want to go down this road, I can give you a list of what I've owned, what I've ditched, and what I'm invested in now. MY rationale is to have some negative correlation against equities in a potentially declining market. I would only recommend a few of them, but most would be soft low conviction "recommendations" because of manager risk--a great unknown.
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Re: Alternative Investments

Post by Always passive »

It all makes sense. I did know about it. I read Swedroe’s book on alternatives a while back. Thank you all for refreshing my memory.
But this is my dilemma (or maybe I do not have one and have to be resigned to the current situation):
Bonds, I mean intermediate term investment grade bonds, have done well for a long, long time and they again have done their job in the 2020 crisis, but it seems to me that the party has ended. As long as that was the case (I think since the mid 80s), I did not mind being bond heavy, meaning having much more than I need to fund retirement even if my wife and I live until 120.
Those extra bonds are now yielding 1 to 2% annual (just check YTM for the total bond or build a 5 year ladder of corporate bonds) and I am sure that no one will doubt that zero interest rates will be with us for many years and that there is even a potential that inflation may also show up after this crisis is over and GDP begins to pick up, say in 6 to 12 months.
Summarizing, I will certainly not want to do something stupid, and at my age I do not want to manage real estate, but that chunk of “dead” money somehow bothers me. Should it not?
000
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Re: Alternative Investments

Post by 000 »

Well, most alternatives are never passive. :mrgreen:
  1. Owning and leasing out real estate is a business, albeit a somewhat different business than what most publicly traded companies are doing, and land may have more intrinsic value than software and a brand name. REITs can be a passive investment, but directly owning land is not.
  2. Gold IMO is just another currency. It can be a passive investment. I will observe that gold is inversely correlated to interest rates just like stocks and bonds; i.e. gold has been bid up in part due to low interest rates on fixed income.
  3. Commodity futures are a tool for their respective suppliers and consumers to hedge prices. Seeing as they serve an insurance like purpose, it would seem that they are likely to have a negative expected real return. I do not consider them a passive investment.
  4. One can get into the insurance business oneself by writing options or for a sufficiently wealthy individual by writing actual insurance on Lloyd's, but this activity is really just another form of equity in a productive business.
  5. Art and other collectibles are certainly not passive investments as there is no liquid efficient market for them.
  6. Royalty trusts could be considered something of a passive investment once you've bought them, but figuring a fair purchase price requires active management.
  7. Something I have previously observed is that if one has some excess space in one's residence, pre-purchasing durable consumer goods one will use oneself offers a 0% real return. This strategy cannot be arbitraged away as it does not scale when storage costs become non-zero.
In conclusion, there are really only three kinds of investments: equity, debenture, and currency.

If you have to hustle to invest in it, congratulations, you just started a business.
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Re: Alternative Investments

Post by qwertyjazz »

It is only recently from a historical perspective that passive investing worked at all. Investing in general markets far away from home was likely a loser. Excess capital still needed to be invested. Alternative investments are likewise asymmetric to risk with most not knowing how to win at them (including me I think). Most excess capital was used locally to start a business or be involved in a local businesss (including a trader who would at least be a local). I keep wondering if in a zero interest world or even negative interest world whether being local and having to do more work in finding places for capital might become standard again. The problem is that the variance of outcomes might be larger than the stock market is still well regulated and a solid investment. Also zero return for fixed income is a better gaurentee than most of history. I think that alternative investments which are not local are probably a sucker bet for the uninformed (at a poker table if you cannot find the sucker guess who it is)
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Always passive
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Re: Alternative Investments

Post by Always passive »

Thank you all, great review. Bottom line: forget about alternatives
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Re: Alternative Investments

Post by Valuethinker »

000 wrote: Sat Sep 19, 2020 1:32 am Well, most alternatives are never passive. :mrgreen:
  1. Owning and leasing out real estate is a business, albeit a somewhat different business than what most publicly traded companies are doing, and land may have more intrinsic value than software and a brand name. REITs can be a passive investment, but directly owning land is not.
  2. Gold IMO is just another currency. It can be a passive investment. I will observe that gold is inversely correlated to interest rates just like stocks and bonds; i.e. gold has been bid up in part due to low interest rates on fixed income.
  3. Commodity futures are a tool for their respective suppliers and consumers to hedge prices. Seeing as they serve an insurance like purpose, it would seem that they are likely to have a negative expected real return. I do not consider them a passive investment.
  4. One can get into the insurance business oneself by writing options or for a sufficiently wealthy individual by writing actual insurance on Lloyd's, but this activity is really just another form of equity in a productive business.
  5. Art and other collectibles are certainly not passive investments as there is no liquid efficient market for them.
  6. Royalty trusts could be considered something of a passive investment once you've bought them, but figuring a fair purchase price requires active management.
  7. Something I have previously observed is that if one has some excess space in one's residence, pre-purchasing durable consumer goods one will use oneself offers a 0% real return. This strategy cannot be arbitraged away as it does not scale when storage costs become non-zero.
In conclusion, there are really only three kinds of investments: equity, debenture, and currency.

If you have to hustle to invest in it, congratulations, you just started a business.
Re durable goods. Because depreciation at least in market value terms is measured by age rather than condition buying them earlier might generate a negative return?

Also this is how deflationary spirals get going. If you believe prices are going to fall, and they have for durable goods so far in recent history, it is still a positive return to wait to buy?

However since your rationale provides me w my justification to my spouse by me to buy that Tesla and those Miele appliances, I thank you for it ;'l

;-)

PS I like your description of gold. Indeed Central Banks use it as a dollar substitute for reserves. Poster market timer has posted here quite a nice chart showing correlation of gold price over greater than 10 year TIPS yields.
Last edited by Valuethinker on Sat Sep 19, 2020 5:02 am, edited 1 time in total.
Chicken Little
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Re: Alternative Investments

Post by Chicken Little »

Always passive wrote: Sat Sep 19, 2020 4:48 am Thank you all, great review. Bottom line: forget about alternatives
I've got two words for you, Always Passive: Rare-Plants
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Re: Alternative Investments

Post by nisiprius »

jaybee9 wrote: Fri Sep 18, 2020 2:56 pm Thanks. No gold? I assume closed-end funds are classified under leveraged funds?
My mistake. There is a chapter on precious metals equities but I accidentally omitted it. I've correct the posting. I've read the book, but I don't own it--I just get the table of contents using Amazon's "look inside" feature for the book.

There's nothing about closed-end funds and I assume it's just because they are not considered to be "alternatives" since they just hold traditional securities.

It's a pity it hasn't been updated since 2010. I think the imitation of the title of a famous book by Andrew Tobias is tacky, and I don't think a book written in 2010 can be "all you'll ever need."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Always passive
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Re: Alternative Investments

Post by Always passive »

Chicken Little wrote: Sat Sep 19, 2020 5:01 am
Always passive wrote: Sat Sep 19, 2020 4:48 am Thank you all, great review. Bottom line: forget about alternatives
I've got two words for you, Always Passive: Rare-Plants
I know nothing about rare plants, but if you know and want to go into partnership with me, I will consider it.
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Re: Alternative Investments

Post by Robot Monster »

It’s probably a good time to invest in commodities now when prices are lower, according to former Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein. 'From an inflation point of view, as an investor, I think investing in material sectors while they’re under-appreciated is not a bad thing now.' Blankfein...however...said he’s unclear if it’s a good idea to invest in gold and silver 'because it’s been so long since those metals played a role as a store of value.'
Source
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000
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Re: Alternative Investments

Post by 000 »

Valuethinker wrote: Sat Sep 19, 2020 4:59 am Re durable goods. Because depreciation at least in market value terms is measured by age rather than condition buying them earlier might generate a negative return?

Also this is how deflationary spirals get going. If you believe prices are going to fall, and they have for durable goods so far in recent history, it is still a positive return to wait to buy?

However since your rationale provides me w my justification to my spouse by me to buy that Tesla and those Miele appliances, I thank you for it ;'l

;-)

PS I like your description of gold. Indeed Central Banks use it as a dollar substitute for reserves. Poster market timer has posted here quite a nice chart showing correlation of gold price over greater than 10 year TIPS yields.
Well, if I'm going to use them myself in the future and I only buy enough so as to not go past the shelf life, I don't see why buying durable goods in this fashion would generate a negative return. I am indifferent to using toilet paper purchased yesterday versus a year ago. Moreover, having enough usable stuff provides a kind of emotional ballast that numbers in a brokerage account cannot.

As far as prices falling for durable consumer goods, I haven't see that in real terms over the last 10+ years or so.

I was thinking more along the lines of Cottonelle and Colgate, not Tesla and Miele :mrgreen:
barberakb
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Re: Alternative Investments

Post by barberakb »

Yes, I am buying SFH's as rentals. Cash flow, likely appreciation, principal pay down by the tenant and tax advantages are better than any other alternative investment for me.
000
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Re: Alternative Investments

Post by 000 »

barberakb wrote: Sun Sep 20, 2020 12:15 am Yes, I am buying SFH's as rentals. Cash flow, likely appreciation, principal pay down by the tenant and tax advantages are better than any other alternative investment for me.
Without the generous leverage and tax code provisions, would you still do SFHs?

Thanks
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Re: Alternative Investments

Post by barberakb »

000 wrote: Sun Sep 20, 2020 12:19 am
barberakb wrote: Sun Sep 20, 2020 12:15 am Yes, I am buying SFH's as rentals. Cash flow, likely appreciation, principal pay down by the tenant and tax advantages are better than any other alternative investment for me.
Without the generous leverage and tax code provisions, would you still do SFHs?

Thanks
Without tax breaks, yes. If what you mean by "generous leverage" is the current low rate mortgages available, without those, No. Unless I found an awesome deal, then still yes.
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Re: Alternative Investments

Post by Valuethinker »

000 wrote: Sat Sep 19, 2020 5:00 pm
Valuethinker wrote: Sat Sep 19, 2020 4:59 am Re durable goods. Because depreciation at least in market value terms is measured by age rather than condition buying them earlier might generate a negative return?

Also this is how deflationary spirals get going. If you believe prices are going to fall, and they have for durable goods so far in recent history, it is still a positive return to wait to buy?

However since your rationale provides me w my justification to my spouse by me to buy that Tesla and those Miele appliances, I thank you for it ;'l

;-)

PS I like your description of gold. Indeed Central Banks use it as a dollar substitute for reserves. Poster market timer has posted here quite a nice chart showing correlation of gold price over greater than 10 year TIPS yields.
Well, if I'm going to use them myself in the future and I only buy enough so as to not go past the shelf life, I don't see why buying durable goods in this fashion would generate a negative return. I am indifferent to using toilet paper purchased yesterday versus a year ago. Moreover, having enough usable stuff provides a kind of emotional ballast that numbers in a brokerage account cannot.

As far as prices falling for durable consumer goods, I haven't see that in real terms over the last 10+ years or so.

I was thinking more along the lines of Cottonelle and Colgate, not Tesla and Miele :mrgreen:
I am pretty sure loo roll is not a consumer durable ;-).

A loo roll holder, yes.

Things like consumer electronics have fallen massively in price over time. Anything manufactured, really, as far as I can tell - a big price blip in the pre 2008 period when raw material prices went up, but generally. It is services that rise in price over time - and you can't store those.

I have bought e.g. Pilates lessons coupons for my spouse, in advance (there was a bulk buy discount). However the economics of many centres in a Covid-19 world are so dodgy that I am not tempted to do as much pre-buying as a I was. A lot of gyms are shutting down permanently, for example.
000
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Re: Alternative Investments

Post by 000 »

Valuethinker wrote: Sun Sep 20, 2020 10:03 am I am pretty sure loo roll is not a consumer durable ;-).

A loo roll holder, yes.

Things like consumer electronics have fallen massively in price over time. Anything manufactured, really, as far as I can tell - a big price blip in the pre 2008 period when raw material prices went up, but generally. It is services that rise in price over time - and you can't store those.

I have bought e.g. Pilates lessons coupons for my spouse, in advance (there was a bulk buy discount). However the economics of many centres in a Covid-19 world are so dodgy that I am not tempted to do as much pre-buying as a I was. A lot of gyms are shutting down permanently, for example.
Perhaps a broader term for what I am talking about is "non-perishable consumer goods". I would rather buy next year's paper towels today (assuming free storage space) than put the same money in a savings account that will lose in terms of paper-towel-purchasing-power, and then buy less of them later.

I think we are getting to a point where buying computer hardware today is more likely to be viable in 10 years than buying hardware 10 years ago is today.

Some services can be prepaid - in the US, some funeral homes advertise prepaid funeral plans.
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Re: Alternative Investments

Post by Robot Monster »

000 wrote: Sun Sep 20, 2020 4:04 pm Some services can be prepaid - in the US, some funeral homes advertise prepaid funeral plans.
Yes, I think I remember that from the TV show Six Feet Under. Preneed planning. We haven't done that, but my family already bought burial plots. We've been told, if we ever want to sell, we can list them in the newspaper classifieds section.
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Re: Alternative Investments

Post by nedsaid »

Always passive wrote: Fri Sep 18, 2020 11:09 am Given that bonds are extremely unattractive and equities, specially in the US, may be highly valued, I wonder if anyone has been exploring alternative investments, real estate, gold, commodities, others. Are there any funds or ETFs that are worth looking at?Can anyone care to comment?
Whether bonds are unattractive or not depends upon the level of interest rates and inflation. If we had mild deflation, I would be thrilled with a 2% yield from bonds. It isn't what you earn but what you keep after taxes, it isn't what you keep after taxes, but after both inflation and taxes. So if you had a 2% yield, 1% deflation, and a 22% percent Federal tax rate, you would keep 1.56% in nominal terms and another 1% on top of that as your bond increase 1% in purchasing power. I would take that.

We are in a period of unprecedented intervention by the Federal Reserve Bank or as Jeremy Seigel puts it, "no asset class left behind." The US Stock Market certainly isn't cheap and neither are bonds. Yields overseas are even lower than the US in Developed Economies of Europe and Japan. So not a lot of cheap assets out there, though commodities look tempting. Gold has climbed in this environment too. Not too many places to hide.

International Stocks look relatively cheap compared to US Stocks but for good reason. During the latest Covid-19 crisis, the US economy fared better than most everyone else. So we are the least dirty shirt in the laundry hamper. If you were looking for cheaper stocks, I would focus on Developing Markets. I have less enthusiasm for Emerging Markets as they are about 40% China, I wouldn't ignore Emerging Markets certainly but I wouldn't go overboard on them either. Emerging Markets stocks are relatively cheap but keep in mind there are additional risks as well.

I have looked at the Alternatives, particularly interval funds and the Liquid Alts. The four funds that Larry Swedroe recommends: AQR Style Premia, Stone Ridge Re-insurance, Stone Ridge Variance Risk Premium, and Stone Ridge Alternative Lending just haven't done well recently. Not exactly a disaster but certainly not the stuff of caviar dreams and champagne wishes. I own a couple of Liquid Alt funds that are long/short and use leverage, they have been nothing to write home about.

REITs have come down in price but I wouldn't call them cheap either. We all know what Covid-19 has done to commercial real estate. Cheaper but for really good reasons. I have owned REIT funds for years and a couple of Timber REITs, this has been a profitable area for me to invest. How they will fare in the future is unknown, but I am holding on to what I have.

The Energy Sector, primarily Oil and Gas look attractive here too but I think this bet is much less certain than in the past. It used to be a slam dunk to buy Energy Stocks when they were down and you would just wait for the inevitable rebound. Not so simple today. A couple of reasons, alternative energy and the increased environmental risks of drilling for oil in more and more remote places. Also fracking has put a lid on energy prices for now. Oil and Natural Gas are relatively cheap and whenever prices start to rebound, the frackers scale up production again.

So no easy answers here. Many threads on Alternative Investments. I wouldn't panic here over low interest rates. Bonds are still a good diversifier to stocks.
A fool and his money are good for business.
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Always passive
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Re: Alternative Investments

Post by Always passive »

nedsaid wrote: Sun Sep 20, 2020 6:27 pm
Always passive wrote: Fri Sep 18, 2020 11:09 am Given that bonds are extremely unattractive and equities, specially in the US, may be highly valued, I wonder if anyone has been exploring alternative investments, real estate, gold, commodities, others. Are there any funds or ETFs that are worth looking at?Can anyone care to comment?
Whether bonds are unattractive or not depends upon the level of interest rates and inflation. If we had mild deflation, I would be thrilled with a 2% yield from bonds. It isn't what you earn but what you keep after taxes, it isn't what you keep after taxes, but after both inflation and taxes. So if you had a 2% yield, 1% deflation, and a 22% percent Federal tax rate, you would keep 1.56% in nominal terms and another 1% on top of that as your bond increase 1% in purchasing power. I would take that.

We are in a period of unprecedented intervention by the Federal Reserve Bank or as Jeremy Seigel puts it, "no asset class left behind." The US Stock Market certainly isn't cheap and neither are bonds. Yields overseas are even lower than the US in Developed Economies of Europe and Japan. So not a lot of cheap assets out there, though commodities look tempting. Gold has climbed in this environment too. Not too many places to hide.

International Stocks look relatively cheap compared to US Stocks but for good reason. During the latest Covid-19 crisis, the US economy fared better than most everyone else. So we are the least dirty shirt in the laundry hamper. If you were looking for cheaper stocks, I would focus on Developing Markets. I have less enthusiasm for Emerging Markets as they are about 40% China, I wouldn't ignore Emerging Markets certainly but I wouldn't go overboard on them either. Emerging Markets stocks are relatively cheap but keep in mind there are additional risks as well.

I have looked at the Alternatives, particularly interval funds and the Liquid Alts. The four funds that Larry Swedroe recommends: AQR Style Premia, Stone Ridge Re-insurance, Stone Ridge Variance Risk Premium, and Stone Ridge Alternative Lending just haven't done well recently. Not exactly a disaster but certainly not the stuff of caviar dreams and champagne wishes. I own a couple of Liquid Alt funds that are long/short and use leverage, they have been nothing to write home about.

REITs have come down in price but I wouldn't call them cheap either. We all know what Covid-19 has done to commercial real estate. Cheaper but for really good reasons. I have owned REIT funds for years and a couple of Timber REITs, this has been a profitable area for me to invest. How they will fare in the future is unknown, but I am holding on to what I have.

The Energy Sector, primarily Oil and Gas look attractive here too but I think this bet is much less certain than in the past. It used to be a slam dunk to buy Energy Stocks when they were down and you would just wait for the inevitable rebound. Not so simple today. A couple of reasons, alternative energy and the increased environmental risks of drilling for oil in more and more remote places. Also fracking has put a lid on energy prices for now. Oil and Natural Gas are relatively cheap and whenever prices start to rebound, the frackers scale up production again.

So no easy answers here. Many threads on Alternative Investments. I wouldn't panic here over low interest rates. Bonds are still a good diversifier to stocks.
Good points, thank you.
Allow me to add that I do not recall times like this. I do not see anything out in the investment grade space that can produce positive real returns in the long term. TIPS with very negative real yield tell the entire story. And that bothers me, specially because I entered this crisis with excess fixed incomes. But unfortunately I do agree on your assessment of the other asset classes. As you say, no place to hide!. Thus, maybe I must accept the present reality.
Grt2bOutdoors
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Re: Alternative Investments

Post by Grt2bOutdoors »

Small value. Out of favor energy MLPs, tobacco, banks, office building REITS.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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