Tired of the traditional stock market rollercoaster? Looking for investment opportunities that offer diversification and maybe better returns? Alternative investments might be the perfect option for you. They come with their own unique risks but can still be a solid addition to your investment portfolio.

What are alternative investments?

Alternative investments are any asset class that isn’t your traditional stocks and bonds. They can be things like real estate, commodities, hedge funds, private equity, venture capital, and more. They usually have different risk profiles and returns than traditional assets.

Why are alternative investments worth looking into?

  • Diversification: By adding alternative investments to your portfolio, you can reduce your overall risk. They’re different enough from traditional investments that there’s not much overlap, so they might do their own thing (and not tank along with your other investments) during market fluctuations.
  • Higher potential returns: While alternative investments come with higher risks, they also have the potential for higher returns. Some types of alternative assets—like private equity and venture capital—have historically outperformed traditional investments over the long term.
  • Hedging against inflation: Certain alternative investments, like commodities and real estate, can be effective hedges against inflation. As prices rise, the value of these assets may also go up, helping to protect your purchasing power.

Popular alternative investment strategies

  • Real estate: Investing in real estate can give you rental income, appreciation of the property value, and tax benefits. You can invest by buying individual properties, buying into real estate investment trusts (REITs), or participating in real estate crowdfunding platforms.
  • Commodities: Commodities like gold, oil, and agricultural products can offer diversification and potential returns. You can invest in commodities through futures contracts, exchange-traded funds (ETFs), or physical commodities.
  • Hedge funds: These professionally managed funds use a variety of strategies to generate returns, often focusing on market inefficiencies or arbitrage opportunities. Hedge funds are usually accessible to accredited investors.
  • Private equity: Private equity funds invest in companies that aren’t publicly traded. They can provide opportunities for big returns but also come with higher risks.
  • Venture capital: Venture capital funds invest in early-stage companies with high growth potential. They can get you substantial returns but also carry significant risks.

Things to consider before investing

  • Risk tolerance: As we’ve mentioned, alternative investments can be riskier than traditional investments. Assess your risk tolerance carefully before you invest—make sure you only put in what you can afford to lose.
  • Liquidity: Many alternative investments are less liquid than stocks and bonds, so it may not be easy to sell them quickly if you need to free up some cash.
  • Fees and expenses: Alternative investments often come with higher fees and expenses compared to traditional investments.

Expertise: Investing in alternative assets may require specialized knowledge and expertise. Consider working with a financial advisor who has experience in this area.