Alternative investments are defined as those that fall outside of traditional asset classes, which typically include stocks, bonds, and cash. This category encompasses a diverse range of investment opportunities, such as private equity, hedge funds, real estate, commodities, and infrastructure.
The significance of alternative investments lies in their potential to offer diversification benefits, as they often have different return profiles and risk characteristics compared to traditional investments. Investors may seek these alternatives to enhance portfolio performance, access unique market opportunities, or mitigate risk through uncorrelated assets.
Understanding the characteristics of alternative investments allows investors to make informed decisions and construct a well-rounded portfolio that addresses various market conditions and investment objectives. This approach is increasingly popular among institutional and high-net-worth investors who are looking to broaden their investment strategies beyond conventional options.