Once the domain of institutional and high-net-worth ꦜinvestors, alternative investments continue to grow in popularity and are making their way into the portfolios of retail (individual) investors.

The term is a catchall for any assets that are bought and sold outside the major stock, bond, and commodity markets. Alternative investments can mean anything from investment-worthy antiques to bitcoins. It also covers undertakings like private 🃏equity deals and venture capital firms.

Alternative investments have their allure, particularly to high-net-worth individuals who have a special interest (and ex🅘pertise) in an esoteric subject and believe they can turn that interest into a valuable investment.

ꦗHere are some of the pros and cons of alternative i♛nvestments.

Alternative Investments Upside

Alternative investments typically don't correlate to the stock market, which means they can be used to add diversification to a portfolio and help mitigate volatility. Some can also offer tax benefits not available in traditional investments.

Like any investment, the 澳洲幸运5开奖号码历史查询:rate of return for alternatives is not guaranteed, but there is potential for it to be higher than th🤡at of traditional investments.

Proponents of alternatives in the portfolios of individual investors maintain they now have a🎀ccess to sophisticated investments and potentially higher returns that until relatively recently𝄹 were only available to institutions, such as pension funds and foundations.

Risks of Alternative Investments

Alternative investments are more co🥂mplex than traditional investment vehicles. They often have higher fees associated with them.

As with any investment, the potential for a high♛er return means higher risk.

Overcoming the Cons

Alternative investments have proliferated since the financial crisis in 2008, especially those 澳洲幸运5开奖号码历史查询:alternatives that are more liquid.

At its broadest definition, alternative investments can include some exchange-traded funds (ETFs) and mutual funds that use strategies similar to 澳洲幸运5开奖号码历史查询:hedge funds to 🍸mitigate risk. In other words, their portfolios are so diverse that their ove🎉rall returns are not correlated to the stock market or the bond market.

Alternative investments such as private equity stakes are even making their way onto 401(k) portfolios. The underlying assets of private equity funds are generally illiquid and difficult to value, which creates a challenge when offering them in 澳洲幸运5开奖号码历史查询:defined contribution plans. Defined contribution plans provide liquidity and prices daily on investment options offered to plan participants. To overcome liquidity and pricing challenges, private equity firms are looking to offer private equity exposure via 澳洲幸运5开奖号码历史查询:target-date funds and collective investment trusts.

Advocates of 澳洲幸🐷运5开奖号码历史查询:private equity as an option in 401(k) plans maintain that the average🅷 investor will now have access to the potentially higher returns that this type of non-traditional investmen𒀰t yields compared to the typical plain-vanilla options—like mutual funds and stock and bonds—from which they have to choose.

Outlook for Alternative Investments

The overall market for alternative investments could grow to $14 trillion by 2023, according to a report by Preqin, a data intelligence provider. Its report defines hedge funds and private equity as classes of alternative investments.

Part of the reason for this may be that investment firms have lowered the entry requirements for mutual funds that are oriented toward alternatives. Also, investors themselves have developed a taste for something besides the usual mix of bonds, mutua𒊎l funds, and exchange-traded funds.

Many emerging economies are switching from a savings-o♑riented approach to an investment approach, making themselves attractive to invesꦬtors seeking new opportunities.

However, this outlook may be conservative considering the arrival of investing in 澳洲幸运5开奖号码历史查询:cryptocurrencies such as bitcoin. This investment option could falter, but the amount of interest in it from institutions worldwide suggests that it could be a viable alternative for those seeking 澳洲幸运5开奖号码历史查询:high-risk/high-return vehicles.  

Another investment that is attracting a lot of money is 澳洲幸运5开奖号码历史查询:equity crowdfunding. Individual investors can purchase shares of a new company throꦿu𒆙gh online sites that offer these opportunities.

This 🎃is a very high-risk investment because many new companies fail. But there are enough investor sucꦛcess stories to make this option attractive for even small investors.  

The Bottom Line

Proponents of non-traditional investments maintain that the average investor now has access to assets not🔯 correlated to th𓃲e stock market, offering diversification and potentially higher returns when compared to mutual funds, stocks, and bonds.

They also are more volatile than traditional investments such as stocks, bonds, and 澳洲幸运5开奖号码历史查询:mutual funds. Most are relatively illiquid, meaning they are difficult to sell quickly.

Most of these alternatives are complex and often have higher risks than tr𝓀a♋ditional investments.

A wise investor might see alternative investors as a means towar🎃d diversification rather than the central strategy of a long-term plan.