Alternative investment – definition and meaning

An Alternative Investment is not a typical or traditional investment.

Alternative investments do not fall into the traditional asset classes of cash, bonds or stocks (shares). Examples of alternative investments include the purchase of tangible assets such as art, antiques, wine, stamps, and coins. Additionally, some financial assets such as commodities, real estate, infrastructure, etc. are also examples of alternative investments.

The term ‘alternative investment’ is a fairly loose one. In other words, alternative investments include a wide range of possible products.

Some people perceive alternative investment as a reference to new types of clean energy. However, in business, it means any investment apart from stocks, bonds, or cash.

‘Investment’ refers to using money to make more money. Investments include the purchase of things that can produce goods or provide an income.

Typically, only rich people or institutional investors hold alternative investment assets. In fact, most brokers of alternative investments have high minimum investments and fee structures.

Alternative investment
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, alternative investments are not for you. You must be willing to bear the risks that such investments carry.

HSBC warns that you could lose all or a significant portion of the alternative investment.

In a Forbes article, dated May 10, 2024, Rebecca Baldridge wrote:

“An alternative investment is a financial asset that doesn’t fall into conventional asset categories, like stocks, bonds and cash. Alternative investments include private equity, venture capital, hedge funds, managed futures and collectables like art and antiques. Commodities and real estate can also be classified as alternative investments.”