What Are Alternative Investments?

Alternative investments fall outside of the common long-only investments in stocks, bonds, and cash. There are many investments that fall under this category, with the most common being commodities, real estate, hedge funds and private equity funds. These will be covered in detail in Alternative Investments.

Benefits & Risks

The returns on alternative investments have generally shown to state low correlations with that on traditional investments, which may reduce an investor’s overall portfolio volatility. Furthermore, they often offer investors higher returns than that of traditional investments. This however, also means that they are riskier investments. While they tend to be less efficiently priced, thus providingmore opportunities for skilled managers to make a profit, they are also generally less liquid and often employ the use of leverage.There tends to be less data available on alternative investments as well, which may pose a challenge to due diligence.

While the potential benefits of including alternative investment products in one’s portfolio are plentiful, determining the appropriate allocations of alternative investments in the portfolio is not as straight-forward as one would like to think. Several considerations such as the historical volatility and maximum drawdowns may need to be assessed in order to better allocate the weights of alternative investments products.

How Do I Gain Access To Alternative Investments?

Given the complexity of alternative investments as well as their high minimum investment amount (particularly hedge funds and private equity funds), alternative investments are often viewed to be suitable only for sophisticated investors. Some of these type of investments however, can be accessed by most investors through synthetic ETFs and alternative investment unit trusts, for which the FSM platform offers a good selection!