An alternative investment is an investment product other than the traditional investments of stocks, bonds, cash, or real estate. The term is a relatively loose one and includes tangible assets such as precious metals, art, wine, antiques, coins, or stamps and some financial assets such as commodities, private equity, hedge funds, carbon credits, venture capital, forests/timber, film production and financial derivatives.
There is a wide variety of literature on alternative investments; however, this term has been used broadly and can also be used to refer to financial alternatives such as derivatives or other alternatives such as energy. It is difficult to find research on the investment characteristics of tangible alternatives such as art or wine due primarily to a lack of good quality data. The Goizueta Business School at Emory University has established the Emory Center for Alternative Investments to provide research and a forum for discussion regarding private equity, hedge fund, and venture capital investments.
The Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003, based on 2002 data, showed high net worth individuals, as defined in the report, to have 10% of their financial assets in alternative investments. For the purposes of the report, alternative investments included "structured products, luxury valuables and collectibles, hedge funds, managed futures, and precious metals". By 2007, this had reduced to 9%. No recommendations were made in either report about the amount of money investors should place in alternative investments.
Alternative investments are sometimes used as a tool to reduce overall investment risk through diversification.
Some of the characteristics of alternative investments may include:
- Low correlation with traditional financial investments such as stocks and shares
- It may be difficult to determine the current market value of the asset
- Alternative investments may be relatively illiquid
- Costs of purchase and sale may be relatively high
- There may be limited historical risk and return data
- A high degree of investment analysis may be required before buying
- Precious metals as an alternative investment
- First class returns for alternative investments by John Greenwood The Telegraph, 6 October 2008. Retrieved 29 October 2011. Archived here.
- CER's as investment
- Investing in forests
- Investing in forests reference 2
- Investing in forests reference 3
- Investing In The Big Screen Can Be A Profitable Story by Shelly Schwartz CNBC, 18 October 2010. Retrieved 29 October 2011. Archived here.
- Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003, p.12. Retrieved 28 March 2010.
- Cap Gemini Merrill Lynch World Wealth Report 2008, p.14. Retrieved 28 March 2010.
- Financial Instruments: Equities, Debt, Derivatives and Alternative Investments by David M. Weiss, Portfolio, 2009. ISBN 1-59184-227-1
- How To Invest In Stamps And Coins, Quick Easy Guides, 2008. ISBN 1-60620-661-3
- Portfolio Diversification benefits of Investing in Stamps by Chris Veld, University of Stirling. (Incomplete first draft)