What makes an investment an alternative
Alternative investments are investments that are not ordinary tradable stocks and bonds: private debt funds, private real estate, infrastructure, credit, hedge funds and sometimes also other non-tradable assets.
Their appeal is clear: they may behave differently from the stock market, therefore adding dispersion. But it is important to understand that dispersion does not mean that there is no risk, but that the risk may come from another source.
The risks that are less visible in the graph
In a non-tradable product, the price is not always updated daily. Therefore the graph may appear more stable, even when behind the scenes there are credit, leverage or depreciation risks.
Liquidity is a critical point. If it is not possible to withdraw the money in a short time, the investment may not be suitable for money intended for an immediate need or an emergency fund.
How to combine responsibly
Those considering an alternative investment should read the investment documents, understand the management fees, ask how the value of the assets is determined, and find out what happens in a crisis scenario.
Alternative investment can be a component of a suitable investor's portfolio, but it should come alongside liquid and transparent assets, and not instead of an orderly risk planning.