Alternative Investments
What Is an Alternative Investment?
Alternative investments are assets that fall outside the traditional categories of stocks, bonds, and cash. These investments often include assets such as private equity, hedge funds, real estate, commodities, collectibles, and cryptocurrencies.
Alternative investments may offer diversification benefits, but they often come with different risks, liquidity levels, and fee structures.
Why It Matters
Alternative investments can help diversify a portfolio because they may not move in the same way as traditional investments. Some investors use them to seek higher returns, hedge against inflation, or gain exposure to specialized markets.
However, they can also be more complex and less liquid than traditional investments.
How Alternative Investments Work
Alternative investments vary widely depending on the asset type.
They may involve:
- direct ownership of real assets
- pooled investment structures
- private market exposure
- specialized trading or valuation methods
Some alternative investments are only available to accredited investors, while others are available through public funds or platforms.
Example
An investor adds a real estate investment trust, a commodities fund, and a private equity fund to a portfolio to reduce reliance on stocks and bonds alone.
Alternative Investments vs Traditional Investments
- Alternative investments include assets outside the standard stock-bond-cash mix.
- Traditional investments usually refer to publicly traded stocks, bonds, and cash equivalents.
FAQs About Alternative Investments
Are alternative investments riskier?
Often yes, though the risks depend on the specific investment.
Do alternative investments improve diversification?
They can, especially if they behave differently from traditional assets.
Are alternative investments liquid?
Some are, but many are less liquid than stocks and bonds.
Related Terms
