What Counts as an Alternative
Alternatives are anything outside the traditional trio of stocks, bonds and cash: private companies, real estate deals, hedge funds, collectibles, commodities and more. Here is how they differ and why people own them.
Outside the usual trio
Most portfolios hold stocks, bonds and cash. Alternative investments are everything else. Some trade on exchanges, like commodity funds. Many do not: private equity, private credit, venture capital, hedge funds, farmland, art, wine and collectibles. Each comes with its own mix of return potential, risk, cost and difficulty getting your money out.
The main families
| Family | Examples | How easy to sell |
|---|---|---|
| Private markets | Private equity, private credit, venture capital | Hard: often locked up for years |
| Real assets | Real estate deals, farmland, infrastructure | Hard to moderate |
| Hedge funds | Long-short, macro, arbitrage funds | Monthly or quarterly, with notice |
| Collectibles | Art, wine, watches, trading cards | Slow and costly |
| Commodities & digital assets | Gold, oil, crypto | Usually easy |
General features; individual investments vary.
Why investors want them
- Diversification: returns that do not move in step with stocks.
- Access: owning private companies before or instead of a public listing.
- Income: private credit and real estate can pay steady interest or rent.
- Inflation protection: real assets and commodities may hold value when prices rise.
The catch
Alternatives usually cost more, are harder to value and are harder to sell. Returns reported by private funds can look smooth partly because the assets are valued infrequently, not because they are truly less risky. And many alternatives are only open to wealthier investors. For most people, a small slice, if any, is plenty.
Key takeaways
- Alternatives are anything beyond stocks, bonds and cash.
- Private markets, real assets, hedge funds and collectibles are major families.
- They can add diversification, access and income.
- They cost more, are harder to value and harder to sell.