1. The Risks and
Advantages of
Alternative Investments

2. A May 2023 Forbes Advisor article reported that alternative
investments have become more accessible for the average
investor. Furthermore, the article stated that placing capital in
alternative investments should be a strategy for those looking
to diversify their portfolios. Alternative investments do not fall
into traditional asset categories, such as stocks, bonds, and
cash. As such, they offer investors both risks and benefits.
One alternative investment is real estate. Considered one of the
most accessible alternative investments, real estate usually
appreciates over time and can also generate rental income. The
two ways that most people invest in property are by renting it
out or investing in a real estate investment trust (REIT), which is
a fund that invests in all types of properties.

3. In addition to real estate, natural resources, such as forests and farmland,
qualify as alternative investments. Investing in farmland and forests allows
investors to generate income after selling trees, wood, and agricultural
commodities. Large companies also invest in commodities such as oil and
iron ore. Alternatively, the everyday investor can invest in natural resources
through derivatives, which are advanced investment tools like futures and
options.
Alternative investments can also include various investment funds. Hedge
funds, for instance, use risky investment strategies to yield high returns.
These are private, pooled investments partnerships where a general
manager oversees a portfolio containing a wide range of assets, such as
publicly traded securities and derivatives, currencies, and startups.

4. Private equity funds are another type of privately pooled
alternative investment fund. Their purpose is to control a stake in
a company. Usually, the fund managers/investors play an active
role in managing the company or portfolio of companies. After
the fund acquires a share in a company, the portfolio and
investors go about restructuring the company or infusing it with
capital to facilitate growth.
Finally, venture capital funds are alternative investments that
place capital in startups. These funds profit from the companies’
equity in return for the investment. Venture capitalists might also
take an active role in the companies’ operations.

5. Alternative investment vehicles come with several risks. Because not all
alternative assets are registered with the SEC, they are not regulated and
do not fall under the authority of the Dodd-Frank Act, which governs how
the US federal government regulates the financial industry. This lack of
regulation can result in a lack of transparency.
Furthermore,these investments might be challenging to buy and sell.
Hedge funds, for example, require investors to keep their money locked in
the fund for a relatively long period of time.

6. Many of these investments are also difficult to value, since
there is no widely agree upon market price. Moreover,
valuations may vary based on the appraiser, as appraisals
tend to be subjective.
Despite their risks, alternative investments do have a few
advantages. For instance, their performance has little
correlation with the stock market. In fact, even when the stock
market is under pressure, alternative investments such as
commodities can still perform well.

7. Alternative investments can also mitigate inflation. For example,
gold, oil, real estate, and other assets that do not lose value can
be a hedge against rising or falling prices, making alternative
investments attractive for some investors.