Alternative investments can largely be defined as investments that do not follow the traditional structure and asset class, such as stocks, bonds, and cash. Stocks, bonds, cash, etc are conventionally popular choices of investment amongst investors. It is observed that the majority of the investors limit their diversification by only investing in traditional investments as they do not have a clear idea about alternative investments.<\/p>\n\n\n\n
The critical characteristic and the most\nsignificant advantage observed of alternative investments is that there is less\ncorrelation between the movement of these investments with that of traditional\nassets. In other words, the relative performance of the alternative assets is\nin low correlation with respect to conventional assets during different phases\nof business cycles and market fluctuations. Thus, adding these unconventional\ninvestments as a part of the portfolio could be a good way of minimizing risk\nand volatility via diversification.<\/p>\n\n\n\n
Another characteristic is the low liquidity of some alternative assets, especially private equity and hedge funds. Both these assets have a specific lock-in period; thus, investors cannot withdraw their funds as per their requirements. In addition, some private real estate investments also have less liquidity. Other characteristics of alternative investments are high risk, lesser regulation, high fees, and low transparency. They also incur complex tax and legal compilation. If you\u2019re unsure of whether adding alternative investments to your portfolio is a suitable option for your financial requirements, consult a financial advisor<\/a><\/strong> for further assessment and guidance. <\/p>\n\n\n\n Table of Contents<\/p>\n