With the stock market experiencing ever increasing volatility these days, investors are constantly on the lookout for newer, safer opportunities or alternative investments to grow their assets without much risk. We all know that a truly diversified portfolio is key in managing the growth vs. risk equation. But how does one truly obtain diversity when stocks are down, real estate is plummeting, and bonds aren’t providing enough growth. Enter alternative investment strategies, like managed futures.

A few minutes of searching the Internet will provide you with copious amounts of information on the benefits of investing in managed futures. However, there are a few key benefits that make managed futures an ideal investment in today’s particularly volatile economy…

• Low correlation to stock and bond markets.
  Even trading in stock futures contracts doesn’t involve the actual purchase of stock in the same way a commodity futures contract doesn’t lead to the actual purchase of the goods. Contracts are based on the value of the stock at a certain settlement date and most are sold before that settlement date is reached.
• Potential for increased portfolio returns.
  Year-to-date numbers show futures yielding positive returns for investors where as the current stock market is producing losses.
• True portfolio diversification.
  The typical investor feels their portfolio is diverse only by including different types of company stock. True diversification leads to investments that include stocks, bonds, real estate, managed futures and other alternative investments.
• Opportunity to easily invest in foreign markets.
  Currently, managed futures accounts are included in more than 150 worldwide markets.

Futures Investing Also Carries Risk

Trading in futures contracts – as with any other type of investment – carries risk. Any transaction can result in a loss of not just the initial investment, but even more. Mismanaged futures contracts are also in danger of actually reaching a settlement date. At which time, the buyer may actually be on the hook to purchase the contracted commodities.

Also as with any type of investment, proper management of futures contracts is vital to reducing risk. Careful consideration must be made when choosing not only how your investments should be managed but also by whom. Once you’ve decided to invest in the futures market, consider the following when choosing your CTA:

• Minimum Account Size: In the past, futures trading was only available to those wishing to invest larger sums of money. Times are changing and minimum account balances are shrinking. Finding an account that will fit your budget is key.
• Disclosure Documentation: Always request disclosure documentation and review it thoroughly. You’ll want to find a CTA whose trading philosophy will align with your objectives.
• Historical Performance: Pay attention to your potential and current CTA’s track record. While governing bodies certify all CTA’s, some outperform others.
• No Guarantees: It is always important to remember that there are no guarantees in futures trading. A CTA’s past performance can be an indicator of future performance, but this is not assured. Continued monitoring of the performance of your account and your CTA will ensure a successful financial relationship.