You may have heard of alternative investments without knowing exactly what they are. Are they different types of common investment products, like stocks or bonds? And what are they an alternative to? Read on to find out.
The term “alternative investment” doesn’t refer to any asset that’s part of the more typical categories, like stocks, bonds, cash, etc. Alternative investments typically include things like private equity, hedge funds, real estate and other tangible assets. Since they’re outside of the “norm,” they can have a different set of rules.
For one, they normally aren’t regulated by the SEC. They can be examined by the SEC, but they don’t have to be registered and aren’t overseen or heavily regulated the way the stocks, mutual funds or ETFs may be.
Alternative investments can be a great way to diversify your portfolio and hedge against inflation while offering potential for high rewards—these can come at a price, though. Alternative investments typically have a high barrier to entry and often require a much more substantial investment, both in time and money, than conventional investments.
If you’re considering alternative investments, it would be a good idea to talk to your financial advisor or similar professional. They can help you manage the risks and prepare you for diving into the world of alternative investments. If done right, they can be the perfect supplement to your portfolio.