An unconventional type of financial asset – different from bonds, stocks and cash. It includes commodities, private equity, hedge funds, real estate or other tangible assets. This is an asset class that lacks regulation and that may include very complex assets with a relatively high level of risk and a risk of very low liquidity.
This is an asset class used mostly by institutional investors. However, ETFs, mutual funds and alt funds have made them more accessible to individual investors.
Alternative investments can have a low correlation to other asset classes, which is an interesting tool for portfolio diversification and to hedge against inflation.
Alternative investments do not have a long history and so we may not know how they will react to market moves. As a result, giving them a high allocation in a portfolio (over 5 or 10%) may be complicated.