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 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.
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, talks about alternative investments.
He explains how an alternative investment offers the opportunity to access different sources of return. They also offer the potential to manage portfolio risk better.