What's the alternative?

With bond yields relatively low and the U.S. stock market up approaching 100% since the March 2009 bear-market low, some investors are turning to alternative investments.

That label covers a slew of riskier investments that include commodities, precious metals, hedge funds, real estate and private equity. A broadly diversified portfolio might include a 10% allocation to alternative investments. To invest in some alternative investments, like hedge funds and private equity, you need to meet minimum thresholds for wealth or annual income.

Even though they get lumped together, the various alternative investments often don't perform like one another. For instance, a global macro hedge fund will fare quite differently from gold shares, which will fare quite differently from real estate--a reminder of how erratically these types of investments can perform.

Alternative Investments might be better viewed not as stand-alone investments, but in terms of their role in a portfolio. For instance, in periods when conventional stock-market investments perform poorly, alternative investments may deliver gains. There are, of course, no guarantees you'll get this sort of performance boost. Moreover, the reverse might also happen, with alternative investments lagging badly as conventional stock-market investments possibly roar ahead.

Thanks to their different pattern of returns, alternative investments may also be a useful addition to a portfolio if you follow a regular rebalancing program. Say you have 10% of your portfolio allocated to alternative investments. You might trim your holdings when they get significantly above 10% and invest more when those positions fall below 10%. This can help manage your portfolio's risk level -- and it could potentially help you profit from the differing pattern of returns, as your rebalancing leads you to buy lower and sell higher.

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

This material is for informational purposes only and does not constitute a solicitation to buy or sell the securities, insurance products, investments, or other products named.

As further described in the offering documents, an investment in alternative investments can be highly illiquid, are speculative and not suitable for all investors. Investing in alternative investments is for experienced and sophisticated investors who are willing to bear the high economic risks associated with such an investment. Investors should carefully review and consider potential risks before investing. Certain of these risks may include:

• loss of all or a substantial portion of the investment due to leveraging, short-selling, or other speculative practices;

• lack of liquidity in that there may be no secondary market for the fund and none is expected to develop;

• volatility of returns;

• restrictions on transferring interests in the Fund;

• potential lack of diversification and resulting higher risk due to concentration of trading authority when a single advisor is utilized;

• absence of information regarding valuations and pricing;

• complex tax structures and delays in tax reporting;

• less regulation and higher fees than mutual funds; and

• manager risk.

Individual funds will have specific risks related to their investment programs that will vary from fund to fund. Diversification does not protect against loss or guarantee a profit.

© 2011 Citigroup Inc. Citi Personal Wealth Management is a business of Citigroup Inc., which offers investment products through Citigroup Global Markets Inc. ("CGMI"), member SIPC. Citibank, N.A. and CGMI are affiliated companies under the common control of Citigroup Inc. Citi and Citi with Arc Design are registered service marks of Citigroup Inc. or its affiliates.