Wealth Insights

Alternative Investments: A Guide

Looking to diversify your investment portfolio? Here’s what you need to know about the most common alternative investments.

As the market’s “bull” status lies in question, investors may want to think about diversifying beyond stocks and bonds. Alternative asset classes tend to have low correlation with stocks and bonds, possibly smoothing out long-term portfolio returns.

Keep in mind that alternative investments can also be riskier and more volatile than stocks and bonds and may require a more significant minimum investment. Before making an investment, it’s important to do your research and talk with your financial advisor about which alternative investments make sense for your situation.

Here’s what you need to know about four types of alternative investments: hedge funds, private real estate, commodities, and private equity.

Hedge Funds

Risk Meter: Moderate

Hedge funds based on the same strategy can produce very different returns, depending on the skill and experience of their managers. Therefore, it’s essential to vet the manager of a potential investment carefully.

Private Real Estate

Risk Meter: Moderate to High

Real estate investments typically produce an income stream as well as capital appreciation, so they may generate a return even in a tough economy. Bear in mind that real estate market trends and inflation can heavily influence your rate of return.

Commodities

Risk Meter: High

Commodity prices can have a low correlation to stocks and bonds, making them a potential portfolio diversifier. However, price changes are often tied to changes in weather, supply-and-demand, global events, or government policy, making commodities a potentially volatile investment.

Private Equity

Risk Meter: High

When it comes to private equity, the riskiness will depend on the type of fund you choose, with venture capital generally being the riskiest. Typically, private equity funds have less transparency on performance than other types of alternative investments.

Interested in incorporating alternative investments into your investment strategy? Talk with your Regions Wealth Advisor.