By David Cumming, CFP, RICP, CRPS
In today’s dynamic market environment, some investors may be looking beyond stocks and bonds for other options for investing their money. This search for other options may lead to alternative investments.
Alternative investments are investments outside the stock and bond markets, and may include real estate, private equity, hedge funds, digital assets, and may include investments offering to these financial instruments such as cryptocurrencies, commodities, precious metals and art or collectibles.
These types of investments tend not to be correlated to the performance of stocks and bonds, and may offer the potential for higher returns, but typically with higher risk.
Here is an overview of what you need to know before investing.
Potential upsides of alternative investments:
• Potential reduction in overall volatility. Since their performance are historically low to moderate correlation with market indices, alternative investments may help to reduce overall volatility within a portfolio of traditional investments.
• Diversification. Alternative investments typically help provide diversification across different markets, strategies, managers and investment styles.
• Potential for increased performance. Like any investment, the rate of return for alternative investments is not guaranteed. However, according to a study called “The Rate of Return on Everything, 1870-2015,” which looked at performance across 16 advanced economies over a period of 145 years, residential real estate provided the best returns.