Neither end-all, be-all nor opaque morass; can facilitate diversification. David Zumbusch, a financial planner with Buffalo, Minn.-based Sportsmen Dream Financial wants to reassure investors about the efficacy of alternative investments to offset the effects market volatility on diversified investment portfolios.

A little pepper

"Alternative investments can be risky on their own," says Zumbusch -- an assertion given weight by high-profile collapses of several large (and typically opaque) hedge funds over the past year, especially ones that had made bad bets in energy or wobbly mortgages. "However, when alternative investments are incorporated into a diversified portfolio, they act like a sprinkling of cayenne in an otherwise hearty stew."

Zumbusch is an independent broker affiliated with Securities America, an Omaha, Neb.-based unit of Minneapolis-based Ameriprise. Sportsmen Dream provides investment and insurance products to "sportsmen" -- outdoor enthusiasts, apparently -- with at least $1 million in investable assets.

Alternative investments are generally reserved to for accredited investors with at least $1 million in net worth or a household income of over $200,000 a year. These strictures are connected with the fact that alternatives can be risky and illiquid.

The essential point of alternatives -- an idea that seems to have been blurred in recent years -- is to "hedge" the performance of a portfolio comprised, in the main, of traditional securities like stocks and bonds; a utility based on the low correclation to broader markets. Hence, says Zumbusch, "it may be wise to include alternative investments in small doses."

Though what might reasonably constitute a "small dose" may vary from investor to investor, Zumbush calls it "a good rule of thumb" to keep the alternative portion of a portfolio "at no more than 20%."