Alternative Investments
In short
Non-traditional assets — hedge funds, private equity, real assets, crypto
Alternative investments are anything outside stocks, bonds, and cash — real estate, hedge funds, private equity, commodities, and crypto. They often have low correlation to traditional markets, improving portfolio diversification.
Alternatives encompass illiquid private assets (private equity, venture capital, real assets) and liquid alternatives (hedge funds, managed futures, market-neutral). They offer diversification and potential return premium but often come with high fees, illiquidity, and complexity.
Related concepts
- Hedge Fund — Hedge funds are investment pools that use complex strategies: short selling, leverage, derivatives. They're only available to wealthy accredited investors. Most charge '2 and 20' — 2% management fee plus 20% of profits.
- Private Equity — Private equity invests in companies that aren't publicly traded. Typically 10-year investments where firms buy companies, improve them, and sell them for a profit. High potential returns but money is locked up for years.
- Real Estate — Real estate investments include buying property directly or through REITs (Real Estate Investment Trusts) — companies that own properties and pay dividends. Real estate provides rental income, tax benefits, and inflation protection.
- Diversification — If you put all your money in one stock and it crashes, you lose everything. Spread it across 20 different stocks, sectors, and even countries — when one falls, others may rise, protecting your overall wealth.