When most people think about investing, they envision portfolios built around stocks, bonds, and mutual funds. But the investment landscape is far broader—and potentially more rewarding—for those willing to explore alternative asset classes. These non-traditional investments often provide access to unique opportunities, diversification, and returns that behave differently from public markets. For savvy investors, understanding the expanding universe of alternatives can open new doors to long-term growth and risk management.
This article is meant to help expand your thinking on what an “investment” is. For example, some people even make money investing in LEGO sets!
Private Equity: Owning a Piece of the Private Market
What it is: Private equity involves investing in private companies—either through buyouts, growth capital, or venture capital—before they go public or are acquired.
Pros:
- High return potential
- Direct ownership in growth-oriented businesses
- Low correlation to public markets
Cons:
- Illiquidity (long holding periods)
- High minimum investment thresholds and fees
- Requires access and expertise to evaluate
Real Estate: Tangible Assets with Income Potential
What it is: Real estate investing spans residential and commercial properties, development projects, and REITs. It includes both direct ownership and pooled investments.
Pros:
- Income through rent and potential tax writeoffs
- Appreciation potential
- Inflation hedge
Cons:
- Property management burdens (in direct ownership)
- Market-specific risks (location, regulation)
- Often capital-intensive
Pre-IPO Shares / VC Secondaries: Get in Before the Public
What it is: These are shares in private, often high-growth companies acquired from early employees, founders, or other investors—typically just before an IPO or acquisition. There are a multitude of VC secondary investment platforms.
Pros:
- Access to late-stage startups (e.g., SpaceX, OpenAI)
- Potential for significant upside at discounted valuations
- Trend-following exposure to tech and innovation
Cons:
- Illiquidity and lack of price transparency
- Regulatory and information risk
- Timing exits can be unpredictable, meaning long hold times that may never result in an IPO
Private Credit: Lending Outside the Banks
What it is: Private credit includes direct lending to businesses or individuals, often via private debt funds. It’s a fast-growing space where investors act as the lender.
Pros:
- Predictable income streams
- Attractive yields relative to traditional bonds
- Low correlation to public fixed-income markets
Cons:
- Higher default risk than government or investment-grade debt
- Illiquid and opaque
- Requires due diligence on borrowers
Collectibles: Passion Meets Portfolio
What it is: This category includes rare and appreciating items like art, wine, vintage cars, sneakers, watches, and trading cards. These can be held directly or accessed through fractional platforms.
Pros:
- Tangible and often personally meaningful
- Limited supply may drive long-term value
- Can perform well in inflationary environments
Cons:
- Highly illiquid
- Valuation can be subjective
- Requires deep domain expertise
Other Alternatives: The Frontier of Innovation
What it is: Other emerging alternatives include hedge funds, commodities, cryptocurrencies, farmland, timberland, litigation finance, and royalty streams. Each has unique risk/return dynamics.
Pros:
- Unique exposures and return sources
- Often uncorrelated to traditional markets
- Many offer income or inflation protection
Cons:
- Complexity and access barriers
- Higher fees and lower transparency
- Some involve significant regulatory or reputational risk
Conclusion: A Wider Lens on Wealth Building
For investors seeking to grow and protect their wealth beyond the ups and downs of the stock market, alternative investments offer a world of opportunity. While they come with their own complexities and risks, they can also provide enhanced returns, income, and diversification when approached thoughtfully. As access to these investments becomes more democratized, the time is ripe to explore what’s possible beyond the traditional portfolio.