While the market gyrates, financial advisors may want to direct their clients to a variety of alternative investments that have little correlation to stocks and bonds, according to two advisors who specialize in alternative investments and retirement planning.

Alternatives can smooth out returns from a portfolio when the market is as volatile as it is right now, says Russ Zalatimo, managing partner at HudsonPoint Capital in Jersey City, N.J.

“From a philosophical stand point, an investor should have other products that will produce income while equities recover from the downturn, and equities will bounce back given time,” says Kevin DuPree, wealth management advisor with DJM Financial Wealth Management and Insurance Services in Irvine, Calif., a Northwestern Mutual firm.

Alternative investments are no longer restricted to wealthy investors, pension funds and endowments, Zalatimo says. Pools of money can be created to allow lower-level investors to seek the noncorrelation to the traditional financial markets.

“I got involved in alternatives because I did not like the fact that no matter how well you are doing as an investor or advisor with traditional investments, if the market drops, you are going to lose money,” Zalatimo says. “We invest in companies that are within a year or two of going public, hedge funds, direct real estate, private equity, commodities and futures.”

When using alternatives, investors and their advisors have to be comfortable with their money being tied up for long time periods—often five years or more—and they have to look at the track record of the managers before selecting investments, Zalatimo says.

“The positive side is that the funds are tied up so the holder cannot be subject to emotionally selling off assets during a downturn,” Zalatimo says, adding that alternatives can make up 10% to 30% of a high-net-worth individual’s portfolio.

Almost one-third of DuPree’s clients are retired and he uses products such as annuities and insurance products to offset potential losses in a volatile market that older investors cannot absorb.

“This is a unique time we are living through,” DuPree says. “Older investors cannot afford to lose principal. Alternatives with guarantees, such as annuities and insurance products, can make up 15% to 30% of a portfolio.

"What I try to do is make sure my clients’ fixed costs are guaranteed without using stocks or bonds," he adds. "This can be done with guaranteed products and passive business investments such as rental property."