.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} tr.d0 td { background-color: #ccccff; color: black; }
As I write this, the stock market is lower, subprime slime is on the front page of the newspaper and the Federal Reserve has just announced a new decision-making process called “Rock, Paper, Scissors.” Since October 2007, the Dow Jones industrial average has fallen 14 percent, and the outlook is bleak.

But it gets worse! In a recent Wall Street Journal survey, economists put the odds of the United States sinking into a recession at nearly 50 percent. Wild markets like this tend to increase the collective anxiety level of investors, ultimately emphasizing the need for portfolio diversification and the importance of alternative investments – including managed futures and professionally traded futures accounts, hedge funds, real estate and private equity.

Let me explain.

The most popular alternative investments I promote are managed and professionally traded futures. Both of these add portfolio diversification, reduce overall portfolio volatility and have been proven to achieve better overall portfolio performance than traditional (stock and bond) investment portfolios.

When I discuss professionally traded futures, a few people gasp and share a horror story about someone they know getting their clock cleaned trading futures. Though investment horror stories can certainly be true, in most cases I would suggest that the losses likely resulted from uneducated choices made by the investor; experiences that could have been avoided had they worked closely with a professional.

By working with professional futures traders and managers, we attempt to better manage our investment risk. Futures markets are complex, and trading experience is essential for success.

Many published studies prove that professionally managed futures accounts can actually reduce volatility and enhance the performance of your investment portfolio. The reason for this is, like other alternative investment products, managed futures and futures trading are “non-correlating investments,” meaning: They often zig when other markets zag.

Another aspect of investing in managed futures is the exposure to many different markets, including, but not limited to, stock indexes, financial instruments, oil and natural gas, metals and orange juice. Although they seem more complicated, futures are nothing more than betting a given commodity will sell higher or lower than it is trading today.

Do your homework to find a firm that works best for your financial vision. Rule No. 1 of any investment vehicle: NEVER chase returns. Just because a manager or commodity was hot last year, it does not mean they will have the same results this year. Look at the long-term results of a commodity trading adviser (CTA) and management style. Some are more aggressive, some fundamental and some technical. The Commodity Futures Trading Commission and the National Futures Association regulate CTAs.

It is important to recognize that managed futures accounts are not right for everyone, in spite of their potential returns. Managed futures carry unique risks and must be carefully evaluated by you and your financial adviser.

Investing in alternative investments and the futures markets requires patience. I advise my clients to stick with any futures investment for at least four years, because these investments tend to be cyclical. In fact, many alternative investment products, like private equity, may be illiquid for a specific term.

I also recommend that alternative investments should constitute no more than 10 percent of a typical investment portfolio, and managed futures should only be one part of that 10 percent.

Consider managed futures as part of your alternative investment strategy and who knows? You may find yourself giving more than a passing glance to the price of pork bellies.

Daniel Ochylski represents commodities trading, private equity and real estate firms. To reach him, send an e-mail to dano@growthfp.com.