What are alternative investments primarily characterized by?

Alternative investments are primarily characterized by their nature of encompassing a diverse range of assets that fall outside the conventional categories of stocks and bonds. This broad classification allows alternative investments to include assets such as real estate, private equity, hedge funds, commodities, and collectibles, among others. The appeal of alternative investments often lies in their potential for higher returns, diversification benefits, and a lower correlation with traditional market movements.

Investing outside of the traditional asset classes can also provide unique opportunities for risk management and portfolio enhancement. For instance, real estate typically behaves differently from equities, allowing investors to hedge against market volatility. Similarly, commodities may become attractive during inflationary times when traditional securities may underperform.

By understanding that alternative investments are those that do not conform to the traditional asset classes, investors can explore a wider range of options that may enhance their portfolios. This diversification can be a strategic approach in managing risk and aiming for improved overall return profiles.