Alternative investments are asset classes that generally don't move together with traditional equity and fixed income markets. Most people are attracted to alternative investment because they may yield a higher return than traditional investments, but note that potentially higher returns also may carry higher risks with them.
Alternative investment involves investment in assets other than the traditional products of stocks, bonds or cash. Financial assets like commodities, private equity, hedge funds and financial derivatives are also accommodated in alternative investment. Traditional investment involves risk.
Alternative investment options for your portfolio
There are many investment products available today and it sometimes may be difficult to clearly identify which investments are conventional or alternative. But below are is a list of common alternative investments along with their potential benefits and risks.
1. Gold
Investing in gold can be accomplished in several ways, including futures funds, exchange-traded funds, mutual funds, bars, and coins. Nevertheless, since precious metals make up a small sector, prices often change dramatically.
2. Hedge fund offerings
Hedge funds have historically been available only to high-net-worth individuals and institutions. Funds of hedge funds invest in a variety of hedge funds with many different strategies and asset classes with the purpose of reducing overall fund risk through increased diversification. Fund of hedge funds are available to investors that meet the accredited net worth standards of at least $1 million.
3. Mutual funds with alternative strategies
Some mutual funds can mimic hedge fund strategies and may be a good option if you're interested in alternative investments but don't meet the accredited investor standards.
4. Real estate investment trusts
A popular type of alternative investment is commercial real estate. Since the inception of real estate investment trusts (REITs), investing in commercial real estate has become available to wider range of investors. REITs are offered to investors in two forms: traded and non-traded. Both offer exposure to commercial real estate assets.
