The answer is sometimes. They can be very useful for hedging against risk during economic downturns. A study published by BlackRock reveals that many alternative investments did provide protection over stocks during the 2001 and 2008 recessions because they performed better than the stock market.
But it also depends on which alternative investment you’re buying. For example, hedge funds had a terrible year in 2016 while the S&P500 stock market index experienced double digit gains. Another thing to watch out for are the high fees that usually comes with investing in hedge funds.
The average management fee and performance fee that investors pay for a typical hedge fund investment is 1.6% and 17.7%, respectively.
The topic of fees has moved to the forefront of investors’ minds, and as competition grows in this space the fees should decrease over time.
This article was republished with permission from Modest Money.