What are alternative investments?

A broad definition of alternative investments includes any type of investment other than traditional investment in shares, cash, bonds and property.

Alternative investments often require either a large amount of capital or a detailed knowledge of the relevant markets for the investor to have a chance of success. Unlike traditional investment portfolios many alternative investment strategies seek positive returns regardless of the status quo of market or economic environments.

Examples of investments that may be considered as alternative include hedge funds, currency funds, managed future funds, derivatives, private equity, assets such as gold and other precious metals and financial instruments such as options and futures.

Alternative investments in a portfolio

One of the key attractions of alternative investments, is that the financial performance of these investments often behave very differently and sometimes completely opposite to traditional investments, generating returns independent of traditional equity and fixed-income markets and enabling portfolios to better weather adverse market conditions. This may make alternative investments good candidates to diversify a portfolio and help produce more consistent returns.

Gold is a good example. Over the long term gold’s correlation with shares, fixed interest and property markets is low. Because gold is perceived as a store of value it can perform well when other markets do poorly. This means that for some investors gold is an alternative investment that may help diversify their investment portfolio and boost returns.

Find out more about alternative investments