In recent years, investors have witnessed the influx of alternative investments for certain accredited investors. In fact, alternative investments are expected to grow from $12.9 trillion in 2022 to $17.2 trillion in 2025.

The projected growth in alternative investments stems from the belief that they have the potential to improve the risk/reward profile of a traditionally diversified portfolio. “Alternative investments” is a broad term covering various strategies and assets that differ from traditional investments like stocks and bonds.

While today’s portfolios may benefit from diversification into alternatives, it’s essential to recognize that risks, returns, and market correlations can differ greatly among these in

vestments. It’s crucial to first identify your goals for including alternative investments, then choose the strategy that aligns with those objectives.

Here are some common types of alternative investments:

• Private Equity: Aims to capitalize on the growth of private companies. This is a long-term, illiquid investment outside the public markets.
• Hedge Funds: These investments have broad flexibility in the strategies they employ to meet their investment goals.
• Commodity Pools: Pools of funds from investors seeking exposure to commodity trades, managed by professionals.

Alternative investments are generally intended for “accredited” or “qualified” investors—those who are high-net-worth and have experience with investing. They often require high minimum investments. However, some mutual funds are modeled after alternative investment strategies, offering more accessibility through daily liquidity and lower minimums.

In conclusion, alternative investments can add great diversification to your portfolio as most alternatives are non-correlated to traditional asset classes (like stocks and bonds). They can help reduce overall portfolio risk by providing exposure to different types of assets, provide the potential for high returns and some real estate related alternatives have some taxable advantages.

Before investing in any mutual fund or alternative investment, make sure to review the prospectus. It contains important information about fees, risks, and objectives. Be sure to read it carefully or consult with your financial professional before making any decisions.