Investors Hunt for Alternatives

"This is something that is only a portion of the precious metals portion of a portfolio," he says. "It's not unreasonable to have 10% of your portfolio in precious metals.

Overcompensation is the neophyte alternative investor's greatest enemy. "It's not unreasonable to have 10% to 15% of your portfolio go into alternatives," says Levine. "But that's because it's a legitimate way to reduce risk for your entire portfolio."

She says she is also looking at real estate investment trusts again, despite their dismal performance in April, when they dropped about 15%, which many observers thought was long overdue. Most advisers stayed away from REITs in the runup to their spring price peak, but some are considering them again.

"They got crushed in April, but some would argue that makes them a good buying opportunity," says Levine. "I like private REITs better than public ones, but the drawback is you give up liquidity. If you are willing to commit money in the long term, you can sit back and collect 6% or 7%. When you're pretty sure bonds are going down, for a portion of your portfolio, it makes sense."

Another option some investors have explored lately is registered hedge funds, which use some of the same strategies as funds that ordinarily require $1 million investments. The last three years have seen registered funds draw about $8 billion from investors, says David Haywood of the Financial Research Corp. Many of the 200 or so hedge fund products that don't require you to be a millionaire still demand minimum commitments of $25.000 or more and charge hefty fees. The standard hedge fund fee is 2% a year, plus 20% of all profits above a certain point, known as a high water mark.

He says the growth of the market is proof that investors want other choices beside mutual funds and stocks. The connection to hedge funds -- largely unregulated investment pools meant for institutions and the very rich -- lends "a certain cachet to these types of products," he says.