“Alternative investments” is an umbrella term for a disparate range of investment strategies and assets that might be best defined as investments that use a different approach from traditional instruments.
While today’s portfolios may benefit from some diversification to alternative investments, it should be emphasized that the risk, return, and market correlations will vary widely among them. Consequently, individuals need to consider what their objective is for adding alternative investments and select the appropriate strategy to pursue their needs.
There are several reasons an investor or a portfolio manager is likely to consider adding alternative investments to the balance sheet. In some cases, money generated from an alternative investment might be subject to far more favorable tax treatment than that from a more traditional investment; e.g., if an investor or client has significant tax-loss carry forwards or tax credits that can be applied to a particular type of activity or source of income.
While the list of alternative investments is extensive, some of the ones you might encounter in the real world include, but are not necessarily limited to, the following:
Real estate and all of its many derivations
Master limited partnerships
Stock or membership units in a privately held business
Commodities, including precious metals such as gold, silver, platinum, and palladium, etc…
Intellectual property such as copyrights, song rights, patents, and trademarks
Privately underwritten mortgages
Art and collectibles
Coins that have numismatic value
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