SPECIAL REPORT
September 11, 2007
How to Buy...        Derivatives
Timely strategies for buying hedge funds, futures, options
Traders joke that long-term investors are just speculators whose short-term bets went bad. The joke's on them.

Using derivative investments such as futures and options, you can be both long-term investor and trader, and create a finely tuned, highly diversified portfolio. Derivatives can spice up a portfolio's return and reduce its risk. Hedge funds, too, add another arrow to your quiver that can offset damaging volatility from stocks and bonds. With global markets on edge, it's more important than ever to consider opportunistic strategies and defensive approaches beyond holding stocks, bonds and cash.

No question, derivative investment products are divisive and frequently derided, as Warren Buffett famously did in 2003 when he dubbed derivatives "financial weapons of mass destruction." To put that comment in perspective, however, Buffett was specifically addressing the questionable tactics of Enron and other rogue traders that ultimately came to a sorry end.

For the rest of us, derivatives can be used prudently and properly, regardless of market conditions. Hedge funds, options and other exotic investments are "an alternative source of power for your portfolio," said Chris Cordaro, chief investment officer at Regent Atlantic Capital LLC, a wealth-management firm in Chatham, N.J. "They preserve return and reduce risk. They're not going to blow you up if you use them correctly."
Marketwatch.com