Today’s investment landscape presents a challenging dilemma: Stock valuations sit at historic highs while bond yields could trend lower. This environment has investors searching beyond traditional assets for better opportunities. Alternative investments — from real estate to private credit — offer potentially attractive returns and portfolio diversification.
In this article, we’ll explore the growing accessibility of alternative investments, their benefits and risks, and specific options worth considering in current market conditions.
Rise of Alternative Investments
Alternative investments encompass assets beyond traditional stocks and bonds, including private equity, real estate, hedge funds, commodities, and private credit. While historically limited to institutional and wealthy investors, regulatory changes have dramatically expanded access to include nearly all investors.
Alternative investments tend to have better returns, lower standard deviations and less drawdown than other asset classes. Source: Invesco
The 2012 JOBS Act marked a pivotal shift through two key provisions: Regulation A+ and Regulation CF (Crowdfunding). Regulation A+ allows companies to raise up to $75 million from retail investors annually, while Regulation CF enables fundraising up to $5 million through online crowdfunding platforms.
The expansion continued through innovations like Business Development Companies (BDCs) and interval funds, which package private investments into publicly traded securities. Meanwhile, major mutual funds are increasingly allocated to private markets, allowing everyday investors to gain exposure through traditional investment vehicles.
Pros & Cons of Alternative Investments
Alternative investments behave differently from traditional assets, often moving independently of stock market swings and economic cycles. This unique behavior stems from their underlying characteristics — whether it’s the steady rental income from real estate, the complexity premium in private markets or the scarcity value of collectibles.
Advantages
- Diversification benefits through low correlation with traditional markets.
- Potential for higher yields than conventional fixed income, especially in private credit markets.
- Opportunity to invest in undervalued assets not yet discovered by public markets.
- Possible inflation hedge through real assets like real estate and commodities.
- Access to emerging opportunities before they reach public markets.
Disadvantages
- Limited liquidity with investments often locks up capital for months or years.
- Higher fees than traditional investments, with many charging management and performance fees.
- Complex structures requiring deeper due diligence and investment knowledge.
- Less regulatory oversight and transparency compared to public markets.
- Risk of valuation bubbles, particularly in venture capital and private equity.
- Minimum investment requirements are often higher than traditional investments.
Alternative Investments to Consider
The alternative investment landscape has evolved significantly, offering both direct investment platforms and traditional market vehicles that provide exposure to private assets. These options vary in their accessibility, minimum investments, and liquidity profiles, so the right choice depends on your individual circumstances.
Investment Platforms
- Fundrise – Real estate portfolios are accessible at a minimum of $10, offering both growth and income strategies.
- Yieldstreet – Private market investments across real estate, art, and other form of alternative investments.
- Masterworks – Fractional ownership in fine art with a $1,000 minimum.
- Steward – Lending to farmers and sustainable agriculture projects.
- Energea – Renewable energy portfolios offering regular income.
Publicly Traded Options
- Ares Capital (ARCC) – Direct lending to middle-market companies.
- Main Street Capital (MAIN) – Focus on lower middle-market businesses.
- Versus Capital Real Assets Fund LLC (VCRRX) – Specialty finance and real estate.
- Stone Ridge Alternative Lending Risk Premium Fund (LENDX) – Consumer and small business credit.
- Grayscale Bitcoin Trust (GBTC) – Direct Bitcoin investment.
Each option carries unique risks and minimum investment requirements — although they’re open to the public. Investors should conduct thorough due diligence and consider consulting a financial advisor before investing.
The Bottom Line
Alternative investments become an increasingly accessible portfolio option for retail investors. Through platforms like Fundrise and publicly traded vehicles like BDCs, investors can now access private markets, real estate, and other alternative assets. These investments offer diversification, higher yields and reduced correlations.
However, adding alternatives requires careful consideration of their limitations, including reduced liquidity, higher fees, and complex structures. Rather than viewing alternatives as a complete replacement for traditional investments, investors should consider them as potential portfolio complements.
