Investors looking for options besides stocks and bonds have plenty of choices in an uncertain market, but experts warn that a move too far into commodities, real estate or hedge fund-style products could yield more long-term damage than short-term help.

With the stock market essentially flat for the year, the bond market in limbo ahead of an imminent rate hike from the


and money markets offering paltry returns, investors are getting pitches for everything from precious metals to collectible bobble head dolls sold on


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While so-called alternative investments, from real estate to hedge funds, are no longer the exclusive domain of the very rich, advisers and financial planners say variations to the typical portfolio template of 60% stocks and 40% bonds should be made with an eye to conserving capital, rather pocketing healthy gains.

They also warn that alternatives are more expensive than conventional funds, with funds that charge higher fees and products that demand larger minimum investments.

"There is no one perfect allocation solution," warns Jane Levine, a financial planner in Danville, Calif., who says she's busy helping clients explore commodity funds and hedge fund-like strategies. "But right now, I think commodities are a pretty good bet as an asset class." So do many other financial planners.


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Pimco Commodity Real Return fund and the


Oppenheimer Real Asset fund are the favorite choices of most planners, who say these funds may be volatile and pricey, but are largely uncorrelated to the with the direction of other markets. The Pimco fund, which has pulled in $4 billion since its launch at the start of 2003, was up 29.1% for its first full year, and is up 16.84% for the year to date. The Oppenheimer fund's class A shares are up 18.3% for the year to date through May, having gained 22.6% in 2003. A rough performance in 2001 cut its three-year total return to 15.51% and its five-year one to 19.94%.

Neither fund is cheap by conventional standards. Oppenheimer charges a 5.75% front-end load, and a 1% management fee and 0.24% 12b-1 fee annually. Pimco charges a 5.5% front end load, and a total of 1.25% in annual fees, which Levine says are generally justified, because of the cost of running the funds.

"It's not quite a direct investment in commodities, but it does have that flavor," says Jack Ablin, chief investment officer at Harris Bank & Trust in Chicago.

He says in the current market, it's better to make fewer bets. In particular, he's been steering clients away from bonds. "Most investors certainly are clamoring for yield -- there's a comfort in knowing that income will be paid," he says, but warns that "given the backdrop of the Fed and the issue of inflation, that is, in many respects, a flawed strategy. I'd rather own hard assets."

Gold may be the original hard asset and interested investors have several paths to ownership. There are gold mining stocks, metals funds, and even direct ownership.

"Gold is really the defensive player on a basket ball or hockey team -- it takes over when your big scorers are tired," says Frank Holmes, chairman, chief executive and chief investment officer of U.S. Global Investors, which runs the

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U.S. Global Investors Global Resources fund, which charges 3.75% a year. "It's a defense against the falling dollar."

"We've said 'don't do it to get rich,'" says Holmes.

Chip Hanlon, chief financial officer of Europacific Capital, a Newport Beach, Calif., investment firm, sells direct ownership certificates for gold, silver or platinum. The metal stays in a government mint in Perth Australia so owners avoid storage charges, often the most expensive aspect of precious metals investing. Hanlon says it's not for everyone, and shouldn't be everything to anyone.

"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.

Ron Roge, a New York investment adviser, steers clients away from hedge funds and their registered counterparts because he doesn't feel they offer enough transparency.

Ted Toal, an Annapolis, Md., adviser, offers this advice: "The big thing investors need to realize is that regardless of what they think the market will do, their thinking is probably going to be wrong," he says. "They should be concerned, and they should own a couple of asset classes that are shown to have a negative correlation to the main U.S. markets, but they should know that's working when the U.S. markets are doing well, and

their alternative allocations are doing poorly."