If you've spent most of your working lifetime investing in mutual funds or exchange-traded funds (ETFs) as a means to fund your retirement, kids' college education, or other significant expenses coming down the pike, you may find these types of investments to be safe and steady but boring. On the other hand, purchasing rental real estate or investing in precious metals could mean receiving late night emergency phone calls or having to purchase a fireproof safe to store relatively illiquid assets. What are some alternative investments that can help break you out of the mutual fund rut while providing you with some diversification and a potentially higher-than-average return? Read on to learn more about some of the alternative investment vehicles available, as well as how buying at the right time could provide you with a higher return on your investment than you may experience with more conservatively invested funds.

What are your alternatives to investing in stocks?

Many investors will choose either a series of individual company stocks -- often focusing on domestic large-cap companies with high sales volume -- or ETFs or mutual funds that provide broader exposure by investing in a number of "slices" of stock shares. These shares represent a portion of ownership of a company, and as time goes on, the value of shares purchased should increase (unless the company declares bankruptcy). You'll then be able to sell your shares and pocket the resulting profit.

However, publicly-traded retail businesses or service providers aren't the only companies in which you can invest. Some alternative investments include the following:

Real estate investment trusts (REITs)

• These trusts use pooled investor money to purchase and manage residential and commercial rental real estate -- from college housing to nursing homes to large commercial or industrial buildings. For those who want to take advantage of rising real estate prices but don't have the time or inclination to deal with tenant screening and maintenance issues, investing in a REIT can be a great way to dive into the world of real estate without incurring any more time or risk than you'd take by investing in a stock.

Hedge funds

• Although hedge funds have often been painted with a broad brush following the subprime housing crisis, these funds utilize a number of capital management techniques that can often help investors realize much higher returns than those available through more traditional means. One tradeoff for higher returns is the limited liquidity of these funds -- in many cases, you'll be unable to request the return of your initial investment for a year or more, and even then may only have the funds distributed every few months. Having this money tied up for a specified period of time can permit investors to take greater risks than some publicly-traded companies that are required to be able to pay out a portion of the value of outstanding stock on any given day.

Which alternative investment vehicles can offer the highest potential return?

Each investor's risk tolerance is different, and it's important to ensure you're receiving advice on your specific situation from a trusted adviser who has your goals, assets, and abilities in mind. However, for many investors, branching out into a REIT or hedge fund as an alternative to stocks, bonds, and mutual funds could provide you with the extra boost needed to increase your total gains while limiting your liabilities if your chosen investment proves not to pan out as you'd hoped. 

In certain markets, both stocks and bonds can take a beating -- and if this economic instability causes the value of the dollar to drop, you could find yourself without any safe harbor. By keeping a portion of your investments in a hedge fund that trades on derivatives, you'll actually be able to take advantage of low prices or poor economic conditions at a time when liquidating other investments could be a pricey mistake. For more information see http://www.jakobpekfund.com.

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