Alternative investments Whether you're a beginner or a pro, these assets can offer a chance for diversification

Find out the benefits, risks and how to add alternative investments to your portfolio.

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When you think about investing in different asset classes, chances are stocks and bonds come to mind first. That’s because these traditional assets make up the bulk of many investors’ portfolios. But in a turbulent market, it’s common to see them decline in value or deliver minimal returns. 

Many investors are looking to diversify their portfolios by adding alternative investments that fall outside traditional asset classes. Alternative investments include things like private equity, hedge funds, real estate, art, wine, and more. These are investments that generally aren’t available on public exchanges.

Alternative assets can provide some balance during tough economic times, as they typically have a low correlation with the stock and bond markets.

Traditional vs. alternative investments

Alternative investments not only offer diversification, but they may provide higher returns than traditional investments. Of course, your returns will vary depending on your investment choices, market conditions, and other factors. 

Here’s a look at how certain traditional investments performed relative to some alternative investments over a five-year time period, from 2017 to 2022. This data is provided by Brent Weiss, co-founder of Facet Wealth, and Bloomberg Terminal. It includes returns on investments held from Dec. 31, 2017 to Dec. 30, 2022.

Investment type
Average annual return
S&P 500 (stock market index)
9.42%
U.S. Treasury Bonds
-0.10%
Real Estate
3.74%
Gold
8.63%
Commodities (wheat, nickel, crude oil)
6.4%
Hedge Funds
2.83%
Crypto
-10.48%

To get started with alternative investments, there are several platforms that specialize in these assets. From fine wine and whiskey to sports cards, here are the best alternative investment platforms.

Types of alternative investments

Definitions vary slightly when it comes to what is considered a true alternative investment, but here are some popular, agreed-upon alternative investments you can consider.

  • Hedge funds - private funds consisting of money from a group of private investors, or limited partners.These funds may rely on leveraged trading — or investing borrowed money — to try and generate large returns. Their reliance on leverage makes them a fairly high risk investment choice.
  • Equity crowdfunding - A unique type of fundraising that lets businesses raise capital without taking out loans.  With this model, a large number of investors contribute to a business through an equity crowdfunding platform like AngelList or Fundable. In exchange for their contributions, investors receive a stake in that business.
  • Private debt - Purchasing debts held by private companies, most often through private debt funds. These funds, such as peer-to-peer lending, may specialize in certain types of financing, such as direct lending, real estate or infrastructure.
  • Commodities - Basic goods, natural materials, or agricultural products, such as coffee beans, sugar, wheat, gasoline, crude oil, coppergold and other precious metals. You can invest in commodities through futures contracts - speculative investments that allow you to buy an asset for a set price and sell it for a certain amount on a specific date.
  • Real estate - Traditionally, investing in real estate meant purchasing residential or commercial properties and renting them out for income. But thanks to new online platforms, real estate investors now have more options. Real estate investments can take the form of: rental properties, farmland, and REITs.
  • Collectables - Whether you’re interested in artworkwine or stamps, investing in collectibles can provide diversification and potentially higher returns than certain traditional investments. Depending on what you’d like to invest in, you could purchase collectibles through an auction or online platform specializing in your desired asset. 
  • Cryptocurrency - A digital asset that trades on cryptocurrency exchanges. While crypto had a rough year in 2022, Bitcoin has still generated some impressive returns over time. In the past five years, this popular cryptocurrency has increased in value by 3%. And unlike gold coins or bullion, you can store Bitcoin in a digital wallet, so you won’t need to find a place to put it.

Alternative investment facts

Want to learn more about the magical world of alternative investments? Shake the sphere for eight financial facts.

For fun investment facts

How to buy alternative investments

Unlike stocks, which are traded on a public exchange, alternative investments aren’t necessarily publicly-traded. If you’re interested in these assets, you may need to purchase them through a private firm or money manager. 

That said, alternative investment funds may be offered through online brokerages or other platforms. For instance, you could purchase shares of a gold exchange-traded fund (ETF) or alternative mutual fund through a broker. You could also buy cryptocurrency online through a crypto exchange.   

It’s easier than ever to invest in art if you know where to look.

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Looking to invest in comic books, trading cards, rare coins, classic cars, and other collectibles? Here's how to get started.

Alternative investments FAQ

  • Are alternative investments risky?

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    Every type of investment comes with the risk of loss, and alternative investments are no exception. While alternative investments often have a low correlation to the stock market, their value still fluctuates. Certain alternative investment strategies, such as hedge funds, may also be riskier than others. It’s important to understand possible risks before you invest.

  • Who should buy alternative investments?

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    Alternative investments can be a good option for experienced investors interested in diversification. As a general rule, these investments should only make up 10% to 20% of your overall portfolio. Some types of alternative investments are only available to accredited or institutional investors.

  • Are alternative investments just for high-net-worth investors?

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    You may need to be a high-net-worth investor to add certain alternative investments to your portfolio. Because of the complexities and unique risks of these investments, many are only available to those who meet specific criteria defined by the U.S. Securities and Exchange Commission (SEC). This is often the case with private debt and commercial real estate investments. However, retail investors can also access some of these assets through ETFs or mutual funds.

Jess Ullrich Freelance Contributor

Jess is a financial writer who's been creating digital content since 2009. Before transitioning to full-time freelance writing, she was an editor at Investopedia and The Balance. Her work has been published on NextAdvisor by Time, Bankrate, Investopedia, and more. In her spare time, she enjoys gardening, spending time with family, and exploring the outdoors.

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