Definition of alternative investments - What is it?

Posted by John Smith on December 17th, 2019

The conservative financial investments such as savings accounts and overnight money or time deposits hardly yield any returns. The ongoing low-interest-rate policy is opening up new shores for investors and the alternative investments seem particularly lucrative.

Novel and innovative investment strategies and investment concepts are summarized as alternative investments. Terms such as hedge funds or private equity are particularly common but that doesn't cover the broad field of alternative investment opportunities.

After all, the trend towards alternatives extends across many other areas of the financial market: works of art or classic cars are just as much a new investment alternative as the areas of infrastructure and raw materials.

There is no general definition in this regard so that there is no clear demarcation between the individual economic sectors. However, it is important that the private equity alternative investments take place outside of traditional financial investments: stocks and bonds are therefore excluded.

But wherever there is a high return, the risk is usually not far. So are the alternative investments really a profitable alternative for investors? Which types of investments are more suitable than others? We give you an overview of the topic.

Investment alternatives have gained in popularity in the last decade. These assets, which can be difficult to value and are generally less liquid than traditional investments, have settled in the portfolio of experienced investors since the 2008 crisis.

 More and more capital is allocated to investment alternatives, as the long-term benefits of this asset class begin to arrive.

How to invest in investment alternatives?

The sophistication of investment alternatives is given by its purpose, and its protection, by the applicable regulation, which imposes limits. Both constitute the main difficulties for those who wish to invest in this way.

However, with the proliferation of technology, investors can access directly and invest in investment alternative opportunities more easily and with less risk, as in any automated process, at least in part. However, it is advisable to hire an alternative investment management firm.

Even so, in practice, it is recommended that investors consult a trusted, experienced and reputable financial advisor about which investments fit properly within a given portfolio and about risk tolerance.

With investment alternatives, the basis is to understand the fund's investment strategy and feel comfortable with the risk profile adopted.