An alternative investment is one that does not fall into the traditional asset classes of cash, bonds or stocks (shares). The purchase of tangible assets such as art, antiques, wine, art, stamps, coins, plus some financial assets such as commodities, real estate, infrastructure, etc. are examples of alternative investments.
The term ‘alternative investment’ is a fairly loose one and includes a broad range of products. Some people see it as a reference to new types of clean energy. However, in the business world it simply means any investment apart from stocks, bonds or cash.
In business and finance, the word ‘investment’ refers to using money to make more money, or purchasing things that can produce goods or provide an income.
Alternative investment assets are generally held by very rich individuals or institutional investors. Many have high minimum investments and fee structures.
Alternative investments are the ‘non-traditional’ ones in this image – across the river.
Is an alternative investment right for you?
HSBC Private Bank says that unless you are an experienced or financially sophisticated investor who is willing to bear the risks linked to such investments, alternative investments are not for you. It warns that you could lose all or a significant portion of the investment.
When asked what an alternative investment is, Andrew Klausner wrote the following in Forbes:
“The answer is quite complicated, because the category spans everything from private equity to mutual funds to ETFs – from liquid types of investments to illiquid types of investments – from those that require investors be qualified (meeting certain income and net worth requirements) to those that don’t. In fact, investing in timber is considered by many to be an alternative investment.”
Video – Alternative investments
In this brief video, Brian Singer, head of William Blair’s Dynamic Allocation Strategies team, explains how alternative investments provide the opportunity to access different sources of return and potential to better manage portfolio risk.