Significance of Alternative Investments

Alternative assets can diversify a portfolio, but they're so specialized and non-standardized that many investors need more money, skill, or risk tolerance to handle them.

FREMONT, CA:  Alternative investments, or "alts," can be invested in but don't fall into the traditional categories of stocks, bonds, and cash. An alternative investment is a broad term for a wide range of specialized, niche, or off-the-beaten-path markets. Alternative assets are investments that are not the same as traditional ones (stocks, bonds, and cash). Alternative investments include a vast range of assets that change over time and are very different from one another. Alternatives can help make a portfolio more diverse, but they also have their risks.

Alts can include highly specialized instruments that most regular investors have never heard of. No rules define the alternatives category everyone agrees on, although institutions may have rules defining alternative investments. They can be hard to value because there needs to be more market data or standard analytical models, so they must be held for a certain amount of time. 

Assets covered by alternative investments are diverse. Most real estate investments are made up of homes and businesses that can get rented out or sold for a profit. Futures contracts, options, and exchange-traded funds (ETFs) are the most common ways for investors to gain exposure to commodities. Aside from precious metals, investors don't usually buy the real thing. Gold and silver are considered commodities, but gold and silver coins are valued for their design and quality, the date they were made, their historical or commemorative value, and their scarcity. 

Coins made of precious metals usually sell for more than their "spot" prices. Hedge funds are managed investments that use advanced trading strategies to beat a standard benchmark. Because many hedge fund strategies are risky, only accredited investors, institutional investors, and people with a lot of money can usually buy into these funds. Private equity is when funds and groups of individual investors put their money straight into private companies. Private investors can pool their money to buy out or buy public companies. However, retail investors can access many alternative asset classes through ETFs, crypto platforms, and commodity exchanges. 

Cryptocurrencies are digital currencies that use an encrypted digital network to verify, execute, and record transactions without relying on a central authority like a government or bank. Even though they are called "currencies," cryptocurrencies are more like speculative investments than other types of money. Collectibles can be anything from jewelry to rare trading cards to furniture as long as they increase in value over time. Alternative investment funds are actively managed, so before investors invest, it is essential to make sure they understand the costs and fees and how they affect the fund's performance.