Experts warn against stocks that can’t be valued and CD returns of 0%. But, where’s the alternative advice? - April 29, 2009

Not surprisingly, financial journalists are correctly pointing out the weaknesses of typical investments like public stocks, CDs and interest-bearing bank accounts. As The Motley Fool observed in “The Case Against Stocks,” today’s unusual market circumstances make it nearly impossible to evaluate a stock’s value. And, as public radio’s Marketplace program noted, investors looking to stash cash safely in banks must accept interest rates as low as .05% (or virtually no return at all!).

Good observations.  What’s frustrating, though, is that the financial press almost never explores useful alternatives to these two extremes.  The best the Fool comes up with is to advise investors to diversify with an index fund — even though the typical index mutual fund lost more than 33% of its value in 2008 (per Morningstar). Marketplace offers even less:  just an anxious warning that near-zero interest rates might prompt the same sort of reckless risk-taking that helped create the financial crisis late last year.

Despite the financial media’s almost exclusive focus on retail investment products, there are good alternatives to these two choices.  And, contrary to how they’re often portrayed in the mainstream financial press, “alternative” investments aren’t necessarily esoteric, high risk, or only for the very rich.

In fact, a trend is brewing among mainstream investors towards self-directed retirement investing — driven by the desire of increasingly savvy (and frustrated) investors to achieve real diversification beyond the public markets.  They’re signing up with IRA custodians like PENSCO Trust and Equity Trust that allow truly self-directed IRA investing.  This step allows them to invest their retirement dollars into alternatives like secured notes (like we offer at Sterling Pacific Financial), income-producing real estate, private company stock, even raw land and commodities.  Many of these investments are much easier to understand than investing in a portfolio of public securities — and, at a minimum, when purchased alongside public stocks, they add diversification that can help protect a portfolio against broad market downturns and corrections.

Despite the lack of attention in the financial media, these alternatives are getting more attention from financial advisers, as they seek ways to help their clients rebuild.  And, in our view, that can only be a good thing!

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