Dolf Dunn Wealth Management, LLCDolf Dunn, CPA/PFS,CFP®,CPWA®,CDFA

Private Wealth Manager11330 Vanstory Drive

Suite 101Huntersville, NC 28078

704-897-0482dolf@dolfdunn.comwww.dolfdunn.com

Beyond Traditional Asset Classes: Exploring Alternatives

April 14, 2014

Stocks, bonds, and cash are fundamentalcomponents of an investment portfolio. However,many other investments can be used to try to spiceup returns or reduce overall portfolio risk. So-calledalternative assets have become popular in recentyears as a way to provide greater diversification.

What is an alternative asset?The term "alternative asset" is highly flexible; it canmean almost anything whose investmentperformance is not correlated with that of stocks andbonds. It may include physical assets, such asprecious metals, real estate, or commodities. In somecases, geographic regions, such as emerging globalmarkets, are considered alternative assets. Complexor novel investing methods also qualify. For example,hedge funds use techniques that are off-limits formost mutual funds, while private equity investmentsrely on skill in selecting and managing specificbusinesses. Finally, collectibles are included becausethe value of your investment depends on the uniqueproperties of a specific item as well as generalinterest in that type of collectible.

Each alternative asset type involves its own uniquerisks and may not be suitable for all investors.Because of the complexities of these various markets,you would do well to seek expert guidance if you wantto include alternative assets in a portfolio.

Hedge fundsHedge funds are private investment vehicles thatmanage money for institutions and wealthyindividuals. They generally are organized as limitedpartnerships, with the fund managers as generalpartners and the investors as limited partners. Thegeneral partner may receive a percentage of theassets, fees based on performance, or both.

Hedge funds originally derived their name from theirability to hedge against a market downturn by sellingshort. Though they may invest in stocks and bonds,hedge funds are considered an alternative asset classbecause of their unique, proprietary investing

strategies, which may include pairs trading, long-shortstrategies, and use of leverage and derivatives.Participation in hedge funds is typically limited to"accredited investors," who must meetSEC-mandated high levels of net worth and ongoingincome (individual funds also usually require veryhigh minimum investments).

Private equity/venture capitalLike stock shares, private equity and venture capitalrepresent an ownership interest in one or morecompanies, but firms that make private equityinvestments may or may not be listed or traded on apublic market or exchange. Private equity firms oftenare involved directly with management of thebusinesses in which they invest.

Private equity often requires a long-term focus.Investments may take years to produce anymeaningful cash flow (if indeed they ever do); manyfunds have 10-year time horizons. Like hedge funds,private equity also typically requires a largeinvestment and is available only to investors whomeet high SEC net worth and income requirements.

Real estateYou may make either direct or indirect investments inbuildings--either commercial or residential--and/orland. Direct investment involves the purchase,improvement, and/or rental of property. Indirectinvestments are made through an entity that investsin property, such as a real estate investment trust(REIT), which may be either publicly traded or not.Real estate not only has a relatively low correlationwith the behavior of the stock market, but also is oftenviewed as a hedge against inflation.

Precious metalsInvestors have traditionally purchased preciousmetals because they believe that gold, silver, andplatinum provide security in times of economic andsocial upheaval. Gold, for instance, has historicallybeen seen as an alternative to paper currency and

Funds of hedge funds

If you do not qualify toinvest directly in a hedgefund, you may be able tofind a fund that invests inmultiple hedge funds andrequires a lower minimuminvestment, though thatminimum usually is stillhigher than mostmutual-fund minimums. Byinvesting in multipleinvesting styles, managers,and strategies, a fund offunds may provide greaterdiversification than a singlehedge fund. Be aware thata fund of funds may or maynot be registered with theSEC; be sure to check.Even if it is registered, anySEC protections apply onlyto the fund of funds, notnecessarily to theunderlying funds in which itinvests. Also, you will payfees charged by both thefund of funds and eachunderlying fund.

Page 1 of 2, see disclaimer on final page

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2014

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for anyindividual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performancereferenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with aqualified tax advisor.

Securities offered through LPL Financial, Member FINRA/SIPC

therefore may help hedge against inflation andcurrency fluctuations. As a result, gold prices oftenrise when investors are worried that the dollar islosing value, though prices can fall just as quickly.

There are many ways to invest in precious metals. Inaddition to buying bullion or coins, you can invest infutures, shares of mining companies, sector funds,and exchange-traded funds (ETFs).

Natural resources/equipment leasingDirect investments in natural resources, such astimber, oil, or natural gas, can be done through limitedpartnerships that provide income from the resourcesproduced. In some cases, such as timber, theresource replenishes itself; in other cases, such as oilor natural gas, it may be depleted over time.Timberland also may be converted for use as a realestate development. Some limited partnerships poolyour money with that of other investors to invest inequipment leasing businesses, giving you partialownership of the equipment those businesses leaseout, such as construction equipment.

Commodities and financial futuresCommodities are physical substances that arefundamental to creating other products or tocommerce generally. Commodities are basicallyindistinguishable from one another. Examples includeoil and natural gas; agricultural products such ascorn, wheat, and soybeans; livestock such as cattleand hogs; and metals such as copper and zinc.

Commodities are typically traded through futurescontracts, which promise delivery on a certain date ata specified price. Futures contracts also are availablefor financial instruments, such as a security, a stockindex, or a currency. Though the futures market wascreated to facilitate trading among companies thatproduce, own, or use commodities in theirbusinesses, futures contracts also are bought andsold as investments in themselves, and some mutualfunds and ETFs are based on futures indexes.

Futures allow an investor to leverage a relativelysmall amount of capital. However, they are highlyspeculative, and that leverage also magnifies thepotential loss if the market does not behave asexpected.

Art, antiques, gems, and collectiblesSome investors are drawn to these because art,antiques, gems, and other collectibles may retain their

value or even appreciate as inflation rises. However,those values can be unpredictable because they areaffected by supply and demand, economic conditions,and the quality of an individual piece or collection.

Why invest in alternative assetclasses?Part of sound portfolio management is diversifyinginvestments so that if one type of investment isperforming poorly, another may be doing well. Aspreviously indicated, returns on some alternativeinvestments are based on factors unique to a specificinvestment. Also, the asset class as a whole maybehave differently from stocks or bonds.

An alternative asset's lack of correlation with othertypes of investments gives it potential to increase orstabilize a portfolio's return. As a result, alternativeassets can complement more traditional assetclasses and provide an additional layer ofdiversification for money that is not part of your coreportfolio, though diversification cannot guarantee aprofit or ensure against a loss.

Tradeoffs you need to understandAlternative assets can be less liquid than stock orbonds. Depending on the investment, there may berestrictions on when you can sell, and you may ormay not be able to find a buyer. Performance, values,and risks may be difficult to research and assessaccurately. Also, you may not be eligible for directinvestment in hedge funds or private equity.

The unique properties of alternative asset classesalso mean that they can involve a high degree of risk.Because some are subject to less regulation thanother investments, there may be fewer constraints toprevent potential manipulation or to limit risk fromhighly concentrated positions in a single investment.Finally, hard assets, such as gold bullion, may involvespecial concerns, such as storage and insurance,while natural resources and commodities can sufferfrom unusual weather or natural disasters.

A financial professional can advise you on whetheralternative assets have a role in your portfolio, andwhich types might be appropriate for you.

Page 2 of 2