What are "alternative investments"?

Alternative investments refer to asset classes that fall outside the traditional categories of stocks, bonds, and cash. These can include a variety of investment vehicles such as real estate, hedge funds, private equity, commodities, and collectibles. The significance of alternative investments lies in their potential to provide diversification benefits and reduce overall portfolio risk, especially since they often have different performance patterns compared to traditional investments.

By investing in alternatives, investors may access unique opportunities and potentially higher returns, although they often come with higher risks and less liquidity. The definition explicitly excludes investments that are confined to more conventional assets, such as government securities, or those that promise fixed returns. This broad categorization helps investors understand the expansive nature of investment possibilities beyond standard market offerings.