We’ve recently been in the midst of the longest ever bull market in U.S. history with stocks hitting several all-time highs. So, as more and more people start speculating to make a quick buck — rather than investing for the long haul — it’s only natural they’d look at alternative investments.
But whether we’re talking about Bitcoin, marijuana stocks or something else speculative, money expert Clark Howard has a rule about these kind of investments!
Alternative investments: What you need to know if you want to get involved
Before we get started though, let’s do a bit of housekeeping…
What are alternative investments?
Alternative investments are a broadly defined asset class that exists outside of the four main recognized asset classes:
- Money market or cash equivalents
- Real estate
So, you can think of them as a fifth asset class that encompasses anything from cryptocurrency to precious metals to hot flavors of the month like pot stocks. Alternative investments can also include things like hedge funds and private equity firms.
What does Clark Howard say about this fifth asset class?
Clark’s longtime rule of thumb for investing in anything that’s not a traditional asset — be it Bitcoin, marijuana stocks or whatever — is easy to remember.
The consumer champ is not opposed to you having a small portion of your investment money in alternative investments. Figure something on the order of 5% of your overall portfolio. To put any more money than that at risk isn’t wise.
To take everything you’ve got and dump it into, say, Bitcoin right now on the hopes that it goes back up to $20,000 a coin like it did two years ago? That’s called being a speculator — and it’s something Clark never encourages.
As an adjunct rule, any money you put at risk in an alternative investment has to pass the “sleep test.”
“Never put more money at risk than would keep you from sleeping at night if you lost all that dough,” Clark says.
More personal finance stories on Clark.com:
- 3 rules for buying gold
- Why you shouldn’t cash out your 401(k) when changing jobs
- This is the age when Clark Howard plans to start collecting Social Security