Alternative Investments for a Smoother Ride

Assets that are neither stocks nor bonds may dampen volatility in your portfolio, but they do come with their own risks.

Over the past year, the U.S. stock market has essentially gone nowhere, but its day-to-day volatility has been astounding -- and frightening. Triple-digit daily swings in the Dow Jones industrial average have seemingly become the norm. As a result, the holy grail of the 21st-century investor is a combination of moderate risk and decent gains. Forget 15% a year. We'd be happy with 8% as long as it came with some protection on the downside.

Neal Simon, chief executive of Highline Wealth Management, in Bethesda, Md., puts the case succinctly: "My clients want to target high-single-digit returns without riding the roller coaster of the equity markets." Don't we all?

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James K. Glassman
Contributing Columnist, Kiplinger's Personal Finance
James K. Glassman is a visiting fellow at the American Enterprise Institute. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.