Alternative investments are financial assets that don’t fit into the traditional categories of stocks, bonds, and cash.

So, there you have it. If you’re familiar with “traditional” investments, aka stocks, bonds, and cash, you can simply think of alternative investments (or alts) as “everything else”. Not very helpful or actionable, I know. So let’s dig a little deeper.

Popular types of alternative investments

Calling something “alternative” makes it sound new, exotic, and exciting. And in the case of investments, perhaps a little risky as well. While some alternative investments certainly have these characteristics, they’re by no means defining traits of the category.

As a matter of fact, many alternative investments are rather boring. I’ve listed some of the most popular ones below, from the plain and stable to the highly speculative. You’ll notice that they include both tangible and intangible assets, another common categorization of alts.

Commodities. Gold, oil, coffee, and gas are all alternative investments. You typically invest in these through futures or ETFs (exchange-traded funds).

Infrastructure. You can invest in bridges, roads, highways, public housing, and utilities through ETFs.

Farmland. Again, not the sexiest asset you can think of, but farmland is certainly worth considering for a more diversified portfolio.

Real estate. Residential, commercial, and industrial real estate have proven track records as great long-term investments. Farmland technically fits under the real estate umbrella as well.

Private equity. Private equity includes asset classes like venture capital, growth capital, and company buyouts. This type of investment has only recently become somewhat accessible to regular investors.

Art. Paintings, sculptures, and other artworks by famous artists have proven to be great investments over several decades.

Collectibles. You’ll find people who invest in all kinds of collectible items from trading cards, comic books, and vintage toys, to stamps, wines, and celebrity memorabilia.

Crypto and NFTs. Cryptocurrency has been one of the hottest asset classes in recent years and is certainly considered “alternative”. NFTs create a new use case for crypto and a whole new layer of speculation.

While primarily used for digital art and collectibles, NFTs have much broader applications than that. I have written a lot about the topic, so feel free to check out my other articles if you want to learn more.

Common traits of alternative investments

So, what do all these different asset classes have in common? Not much, to be honest. Investing in gold or real estate is significantly different from buying a stake in a startup, let alone a piece of NFT art.

Each type of alternative investment has its own characteristics and market dynamics, as well as advantages and disadvantages. They all deserve their own dedicated breakdowns (which I hope to write in the near future).

There are a few traits that are common enough among various alts to be worth highlighting, although you’re by no means guaranteed to get these in your own alt investments. And on that note, you shouldn’t read any of this as financial or investment advice.

Benefits of alternative investments

Low correlation to traditional investments. The markets for many alternative investments tend to move independently of traditional ones. Some may even be inversely correlated at times. However, the crypto market has for a long time been highly correlated to the Nasdaq.

Inflation hedge. Commodities, and gold in particular, are known for being hedges against inflation. Cryptocurrencies like bitcoin and ether also have the potential to become inflation hedges because of their fixed, or even deflationary, supplies.

Potential for higher returns. Some alts are perfect examples of “high risk, high reward” investments. Think startups, crypto, NFTs, art from unproven artists, and any collectible aside from well-established blue chips.

Diversification. As with any new asset class you didn’t previously have exposure to, investing in alts will diversify your portfolio and potentially improve your performance in various market conditions.

Downsides of alternative investments

Higher risk. As mentioned above, investing in alts give you the potential for outsized returns — at the cost of higher risk. In many cases, you need to be prepared to lose your entire investment.

Low liquidity. Generally speaking, you can’t simply go hit a Buy or Sell button on a house or million-dollar painting. Some platforms are changing this, however. I’ll mention some of them below.

Unclear value. Art and collectibles have no intrinsic value and most startups and cryptocurrencies generally trade on bold ambitions and hopes for the future.

Limited access. Many alternative investments have always been out of reach for retail investors. You had to be ultra-wealthy, well-connected, or even an accredited investor to get access. Luckily for you and me, this has improved a lot in recent years and continues to do so.

Platforms making alts accessible to everyone

New online marketplaces are eroding many of the downsides mentioned above. They allow for much more efficient and transparent markets by connecting buyers and sellers across the world and providing real-time market data.

Many of them also revolutionize the markets with fractional ownership, enabling anyone to invest in expensive artworks, collectibles, and properties with as little as a few dollars.

FarmTogether, Rally Rd., Masterworks, and others are opening up the world of alts to everyone

I will do a deeper dive into these platforms in an upcoming article. For now, here are some of the most popular ones for you to explore:

• Yieldstreet. Alternative investment funds ($2,500 min. investment).
• Fundrise, Arrived Homes, and DiversyFund. Real estate ($10 — $500 min. investment).
• Mainvest. Debt investing in small American businesses ($100 min. investment).
• Rally Rd. and Collectable. Collectibles and sports memorabilia ($5 min. investment).
• Masterworks. Art ($20 min. investment, varies).
• Coinbase, Binance, and FTX. Cryptocurrencies and NFTs ($2 min. investment).
• OpenSea, Objkt.com, and Magic Eden. NFTs (no min. investment).
• Vinovest. Fine wine ($1,000 min. investment).
• Prosper. Peer-to-peer loans ($25 min. investment).
• FarmTogether. Agricultural real estate ($15,000 min. investment).
• Vaulted. Gold ($1 min. investment).
• Wefunder. Startups ($100 min. investment).

Key takeaways

The term “alternative investment” covers a broad range of different asset classes from commodities and farmland, to real estate and startups, to art and NFTs. Each asset class comes with its own set of pros and cons that make it more or less suitable for an individual investor.

What they’re all sure to provide you is diversification. This is arguably a strong enough argument for you to add some alts to your portfolio. And if you do, you’ve got plenty of new online platforms to help you get started.