You are perhaps glad I’m now close to the end of this conversation about Alternative Investments. I know I am. This one is intended as a summary, based on a recent letter to my clients. It’s a little long but I encourage you to get to the end.

Most of us have been struggling with the effects of the economy and listening to the various media pundits about what is wrong and what to do about it. If you’re like me, you’re sick and tired of being sick and tired.

For almost 40 years, I have been a financial planner. I like to think I have a good reputation for integrity and performance. Right now it’s being tested. I’m increasingly convinced it will be in my clients best interest to move much of their money into a defensive posture that relies on technology and ‘alternative investments’.

From day one, you have heard me talk about asset allocation and the need to be diversified. It helps when things are good and it helps when things are bad, except when it doesn’t. Which is what happened in 2008/2009.

This chart, from Rydex/SGI, shows periods in green, which are bull markets, and red, which are bear markets. One follows the other. Red is where we are now and while sooner or later we can say it is green again, no one knows when that will happen.

Investment strategies that are appropriate during a green period are not necessarily good strategies when we are living through a red period. If you plan to be alive 50 years from now and only then need to tap into your savings to help buy groceries and gasoline, then the traditional buy-and-hold approach is fine. But that doesn’t describe most of us.

We must find a way to incorporate those “alternative investments” that I’ve been talking about. Some of them come from Rydex/SGI. Others are ETFs that fit the bill. What we need is a way to buy and sell a mixture of these assets such that you are able to make money regardless of whether the market is moving up or down on any given day.

If you have the time, energy and inclination to do this by yourself, I’ll do everything I can to point you in the right direction. If you have another advisor to whom you express a loyalty, that’s OK too. Only I urge you to have a conversation with them about this.

As for myself, I have neither the time, energy or inclination to do this for myself, so I’ve found an advisory firm in Tacoma, Washington with a history and expertise to do it for me. I am encouraging all my clients to move toward this solution.

Here’s why. The S&P 500 index is essentially a proxy for the 500 top companies in the US, and a proxy for the US stock market in general. From October 1, 2005 until the end of March, 2011, the S&P500 saw an annualized return of 3.54%. One of the investment options offered by the folks in Tacoma, over the same time period, had an annualized return, net of all fees, of 17.04%. And with less volatility than did the S&P500.

No one should ever buy something just because the performance numbers were better. But in my professional opinion, this approach has a far better chance of giving you a positive outcome than what you are doing now. But again, there are no guarantees.

The buy-and-hold approach that served us so well in the 90’s will eventually come back into favor. During that decade, you could put your money virtually anywhere on the table and it would grow. Unfortunately, we developed many of our investment habits during this last green period and its taken until now for many of us to realize it’s no longer working.

Given the debt crisis in this country, our unemployment numbers and the pervasive problems with real estate, I think we’re going to be in the red column for several more years. Since I claim to be a professional financial planner, I encourage you to shift gears and position yourself to take advantage of this thinking.