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The ideal investment portfolio is solid and liquid at the same time. Perhaps because this principle defies the common sense of physics, even some of the world's biggest investors have overlooked it.
How did the "smart money" get into this fix? As bond yields shrank in the 1990s and stocks shriveled soon after, institutional investors began looking for assets that would generate solid returns no matter what.
The solution was "alternative investments" -- hedge funds, real estate, venture capital, private-equity funds and natural resources. Between 2000 and 2002, as stocks collapsed, endowments led by Yale University beat the Standard & Poor's 500-stock index by huge margins thanks to their stake in alternatives.
Word got around. In 1995, according to Managing Director Celia Dallas of the consulting firm Cambridge Associates, endowments had less than 10% of assets in alternatives; by 2008, that average had climbed to more than 30%.
So what? Many hedge funds lock up investors' money for as long as three years. The typical private-equity fund makes "capital calls," requiring investors to pony up another 50 cents to 75 cents for every dollar they already have committed.
Now, however, all isn't well. With no gains to be found, many institutions are short on liquidity just when they need it most.
So, no matter how big or small an investor you are, take a couple of hours to take an inventory of all your assets: stocks, bonds, your home, your business and anything else you own. Size up what it would cost, and how long it would take, to turn each of them into cash. If one part of your portfolio takes a dive, you want to make sure you don't crash-land on dry concrete.