7 Best Alternative Investments

What are alternative investments?

Alternative investments are non-traditional assets like cryptocurrency, options, private equity, real estate and art. Alternative investments are typically defined as investments aside from stocks, bonds, mutual funds and other investments that traditionally make up the core of a portfolio.

While the “alternative investments” classification encompasses lots of very different types of investments, most share a few characteristics: Many alternative investments are less regulated by the U.S. Securities and Exchange Commission (SEC) than traditional investments, they tend to be more difficult to sell, and they may not have a high correlation with the stock market. That means if the overall market is down, it doesn’t make it more likely for your alternative assets to be down too.

Another commonality is that they tend to carry more risk than traditional investments. All investments should be approached with scrutiny, but alts deserve an extra degree of caution. One guideline is to invest no more than 10% of your overall investment portfolio into higher-risk investments.

How to buy alternative investments

There are a handful of ways to invest in the alternative investments covered here, but buying alts typically boils down to one of three options: Buying the asset itself, investing in a company that invests in the asset or is involved in its production, or investing in a fund that holds lots of those companies. For example, you can buy raw gold, stock in companies related to gold, or a gold ETF.

If you want to buy alts themselves, it may be trickier than buying traditional assets. While some alts can also be purchased from a brokerage, others, like futures and forex, typically require a special account. Crypto can be found on crypto exchanges, real estate crowdfunding can be accessed through individual platforms, and collectibles are often purchased at auctions or private sales.

If you want to gain exposure to an alt through a stock or fund, you need to have a brokerage account to do so.

» Find the best brokerage accounts

7 alternative investments to consider

Here are seven alternative investments that are worth exploring and how to buy them.

1. Derivatives

Derivatives are investments that are linked to an underlying asset, commodity or index. There are several types of derivatives, including futures and forex.

Futures

Futures are derivative contracts that outline an agreement to buy or sell a particular asset at a set date in the future for a particular price. Futures contracts may obligate the buyer to take physical delivery of the asset at the set date, so to avoid having a truck of corn show up on your doorstep, you may have to sell at a significant loss.

» Check out the best brokerages for futures trading

Forex

Forex trading is a speculative investment through which you buy and sell different currencies. For instance, if you believe the U.S. dollar will rise and the euro will fall, you could exchange euros for U.S. dollars. Most traditional brokerages don’t offer access to forex, so you’ll need to look into a forex broker if you want to start trading international currencies.

» Compare the best brokers for forex trading

2. Digital assets

Digital assets, such as cryptocurrencies and nonfungible tokens (NFTs), are supported by blockchain technology.

Cryptocurrency

Cryptocurrency is a form of digital currency. There are many different crypto coins, such as Bitcoin or Ethereum. You can use crypto to pay for things, like you would with a regular currency, or you can use it as an investment by buying it in the hope that it will increase in value over time (like pretty much any other investment).

If you’re looking to purchase crypto directly, there are a few ways you can do it. Some online brokerages allow you to purchase crypto through them.

Some people may opt to store their crypto in a more secure fashion than an online exchange: a crypto wallet. Storing your crypto yourself makes you less vulnerable to security breaches, but comes with some risks. Learn more about how to buy cryptocurrency.

If you’re looking to get exposure to the crypto market without directly investing in crypto itself, you can consider crypto stocks. These stocks don’t include actual crypto, but rather companies that are involved in the wider crypto market, such as those that create equipment used to mine cryptocurrencies or operate crypto exchanges.

You can also look into Bitcoin ETFs. These ETFs track the price of Bitcoin by holding a large amount of the currency itself.

» Explore the best crypto exchange platforms and apps

NFTs

Nonfungible tokens, or NFTs, let you have a record as being the owner of an original digital file. That file can be a piece of digital art or an item from a video game, and each NFT is unique. NFTs have largely declined in value since 2021 when they were making headlines.

» Learn more about NFTs

3. Precious metals

Unlike many of the investments in this list, precious metals, such as gold and silver, have been considered valuable since humanity’s early days. That’s particularly helpful because it provides a long track record to assess their values. Precious metals can also sometimes function as a hedge against inflation in a well-diversified portfolio.

There are several ways to invest in precious metals. You can buy the metal itself, typically in the form of bullion (think bars or coins) or jewelry. Bullion may be tempting — who doesn’t want a bunch of gold bars or necklaces lying around? But it's difficult to store and sell.

Some brokers, like Fidelity and Interactive Brokers, allow you to purchase precious metals through them. These brokers can send the gold to you or hold onto it for you.

You can also invest in gold stocks or other precious metal stocks, or gold ETFs.

» Discover how to buy gold

4. Collectibles

Investing in collectibles, such as wine or fine art, comes with many of the difficulties of investing in bullion: It can be difficult to secure and store, and it can be difficult to sell. Unless you’re well-connected in a particular collector’s industry, finding a buyer for your antique sculpture or vintage muscle car when you’re ready to cash in may be challenging.

» Invest in art through Masterworks

5. Commodities

Commodities are raw, physical products such as oil, wheat, gold or corn. Investing in commodities may have some overlap with a few of the other categories listed here. For instance, you can invest in commodity futures, or you can purchase precious metals, which are technically commodities. You can also buy commodity stocks or commodity ETFs.

6. Real estate

There are several ways to invest in real estate, including REITs, or real estate investment trusts, utilizing a real estate investing platform or purchasing actual property.

REITs

REITs are similar to mutual funds in that they are companies, but they specifically own, operate or finance income-producing properties, such as apartment complexes that generate rent. REITs must pay out at least 90% of their taxable income to shareholders in the form of dividends, creating a potential revenue stream for investors. As with stocks, you can purchase publicly traded REITs through a brokerage account.

Real estate investing platforms

Real estate crowdfunding investment platforms have made investing in real estate far more accessible for the everyday investor. These platforms combine your money with other investors’ money so you can access private REITs and private property investments that historically have only been available to accredited investors (though some of these platforms are also only open to accredited-investors).

» Check out the best real estate investing platforms

Actual property

If you have the capital, you can invest in actual real estate properties. This option may be attractive to those who can afford the startup costs (such as a down payment and any upgrades) and prefer to invest in something physical. The downsides include the risk of putting so much capital into one property, having to pay someone to manage and maintain the property, or having to do it yourself.

» Compare investment property mortgage rates

7. Private equity

Private equity is exactly what it sounds like — equity that comes from private investors. Typically, the only way to access private equity is through a private equity firm, and the investments are often only open to accredited investors who can meet a very high minimum investment.

Alternative investment pros

Diversification. Diversification helps spread your risk out across different industries, sectors and geographies. If the tech sector is up and the oil industry is down, and you’re invested in both, you can smooth out the highs and lows of each. Alternative investments provide investment diversification, especially because they may have lower correlation to traditional investments.

Potential reward. This is obviously one of the most attractive parts of alternative investments: They have the potential to bring in big financial gains. But in order to realize those large gains, you have to pick the right investment at the right time. And people, even investing professionals, often get it wrong and lose money.

Access. Until recently, alternative investments were only available to accredited investors or those with a high net worth. Now, there are more ways than ever for everyday investors to get access to some of these investments.

Alternative investment cons

High Risk. Alternative investments almost always carry more risk than traditional investments such as stocks or bonds.

Illiquid. With many types of alternative investments, you may not be able to get your money out right away.

Less regulation. Many alternative investments are less regulated by the SEC than traditional assets.

Storage. Some alternative investments, such as precious metals, crypto, and collectibles, come with the added difficulty of storing them.

Best alternative investment to stocks

The best alternative investments to stocks will depend on your existing portfolio. For most people, a well-diversified stock-based portfolio can help you build wealth over time. If your portfolio is already in good shape, and you’re looking for something more exciting to supplement with a small percentage, you can start to look at alternative investments’ historical returns in comparison to the standard market.

For example, the average stock market return, as measured by the S&P 500 index, is about 10% per year for the last 30 years. Some years are higher and some years are lower, but over time, S&P 500 index funds have returned about 10%, not accounting for inflation.

Knowing that, you can start to compare that to the performance of alternative investments. Since 1972, on average, the FTSE NAREIT All Equity REITs index has returned an 11.3% total annual return. That’s not to say that REITs always outperform the S&P 500, but it does show over fifty years of strong performance. If you were to add a REIT to your investment portfolio, it would also help diversify your holdings.

» Which is better: Real estate vs. stocks?

Since 1969, gold has had a median average closing price of about $384 per ounce, and in 2024, gold’s average closing price has topped $2,000 per ounce. That sounds great, but gold’s average annual return from the last 30 years was 6.7% — significantly less than either the S&P 500 or REITs. Gold can, however, serve as a hedge against inflation. Every investment has pros and cons. That’s why it’s so important to consider potential alternative investments against your existing portfolio.

The bottom line

Alternative investments can be exciting, and they can help diversify your portfolio, but they also come with particular challenges and risks. If you’re curious about alternative investments, it’s worth doing your homework to see how they might complement your existing investment portfolio. If you don’t already have an investment portfolio composed of more traditional assets, it may be better to focus on building that first.