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ALTERNATIVE INVESTMENTS

investing wednesday word of the week Aug 14, 2019

Definition

Alternative Investments are any investment that is not cash, equities, and bonds

Why It's Important

The list of alternative investments is very broad and includes real estate-backed securities, mortgage-backed securities, limited partnership interests, hedge funds (explained here), private equity, collectibles, natural resources, cryptocurrency, precious metals, and even options and futures contracts. Whew!

Alternative investments can play an important role in the development of a diversified portfolio (explained here). Most financial assets are positively correlated (when one moves up the other moves up) but with alternative investments there is typically a low correlation, no correlation, or even a negative correlation (when one moves up the other moves down) making it a good way to hedge (protect yourself) in the event of a lost.

*Beware* They are typically higher in risk than other investments so tread lightly unless you know what you are doing!

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