When markets get bumpy or traditional portfolios start to feel a little “same old, same old,” it’s natural to wonder what else is out there. That curiosity often leads to a buzzy but often misunderstood corner of the investment world known as alternative investments. But before jumping in, it’s important to understand what these are, who they’re for, and what to watch out for. While alternatives can add a new dimension to your portfolio, they’re not always the right fit for everyone.
At its core, an alternative investment is really anything that’s not a stock or a bond. That makes it a broad category by definition. We’re talking about things like private equity (owning pieces of private companies), private credit (lending directly to businesses), hedge funds (pooled investments that use more flexible strategies), and real assets like real estate, infrastructure, or commodities. Even farmland and timber can fall under this umbrella. And while cryptocurrencies like Bitcoin are sometimes included here, they tend to follow their own playbook and are often treated as a separate category entirely.
Each category has its own risk/return profile, investment structure, and liquidity terms. That variety is part of the appeal, but it also means you need to know what you’re really getting into.
Why Consider Alternatives?
Investors (and advisors) may look to alternatives for a few key reasons:
- Diversification: Because alternatives may not move in lockstep with stocks and bonds, they can help smooth out overall portfolio performance.
- Potential for higher returns: Some alternatives, like private equity, have historically offered attractive long-term gains, although they also come with higher risk.
- Inflation protection: Certain real assets, like real estate or commodities, may act as hedges when inflation rises.
- Access to non-public markets: Some investments are off the beaten path, offering exposure to opportunities not available in public markets.
That all sounds great—but it comes with caveats.
What to Look Out For
Many alternatives are complex, illiquid, and expensive. Some can lock up your money for years. Others may not be priced regularly or come with much transparency. Even understanding what you own—and what role it’s playing in your broader plan—can be a challenge.
The illiquidity and complexity may be manageable if you’re in the accumulation phase of your financial life and have a longer time horizon. If you’re nearing or in retirement, where steady income and flexibility are more important, tying up capital in something you can’t easily access may be more risk than reward.
Access is another consideration. Many alternative investments are only available to accredited investors. According to the SEC, that typically means having a net worth of over $1 million (excluding your primary residence) or earning $200,000 annually ($300,000 with a spouse) for the past two years, with the expectation that income continues. Certain financial professionals also qualify based on licensing or experience. These requirements exist because alternatives often require a higher level of investment knowledge, and you don’t want to need funds from a vehicle that can’t be easily liquidated.
That said, newer investment structures like ETFs are starting to make parts of the alternative universe more accessible, even to non-accredited investors. These products aim to mimic hedge fund or private market strategies with more liquidity and lower minimums, though often at the cost of reduced return potential.
The Bottom Line
Ultimately, the question isn’t just whether you can invest in alternatives, it’s whether you should. Alternatives can play a role in certain portfolios, but they’re not a silver bullet and are certainly not required to build a solid retirement plan.
If you’re thinking about incorporating alternatives, the key is to do so intentionally. Ask what role the investment plays, whether the fees and risks are worth it, and how it fits into your broader strategy. Those who meet the right criteria and have a clear reason for incorporating alternatives might offer added diversification, inflation protection, or access to new sources of return. Remember that adding “something different” shouldn’t come at the cost of liquidity, clarity, or peace of mind. If you’re considering alternatives, make sure you understand not just what you’re buying, but why you’re buying it.
RISA® Framework
And this is where your retirement income style comes into play. Through the RISA® (Retirement Income Style Awareness) framework, we help identify how you naturally prefer to approach retirement—whether that’s through market-based growth, reliable income, or a blend of strategies. If your style leans more toward optionality or total return, certain alternative investments might enhance diversification or provide access to less traditional return sources. If you’re more income-oriented or focused on contractual guarantees, the illiquidity and complexity of alternatives may not align with your core needs.
There’s no one-size-fits-all answer. But knowing your style can help ensure that every piece of your portfolio, alternatives included, works in service of your bigger retirement picture. Click here to get started and discover your Retirement Income Style.
Want to learn more? Listen to Ep. 177 of the Retire With Style Podcast.
