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What Is an Alternative Investment?

Jun 15, 2015 by

What Is an Alternative Investment?

Any type of investment which is different than stocks, bonds and cash is considered as an alternative investment.

The aforementioned three main categories of assets we also name as traditional investments.

According to the more wide understanding of the term alternative investments, in the group of these financial instruments is included broad variety of investments, even such as film production, carbon credits, art, wine and antiques.

Still, it is worth to mention that in most financial sources of information about alternative investments prevails more precise and narrow list of such investment choices. In line with this list, alternative investments include derivatives contracts, hedge funds, real estate, managed futures and commodities.

Possibly, you already want to ask: “What makes the alternative investment so alternative?”.

The first characteristic which makes it more advanced and different than the classical financial instrument is that it is like an upgrade of the traditional investment. As an example, we may say that the child is always more perfect and usually outreaches its parents.

Accumulating all strengths of their parents, the alternative investments have their individual, built up with the time and practice advantages. One of them is that they grant investors accesses to markets which in the past has been a privilege of few investors. The average investor had no access to the commodities’ market many years ago.

It was impossible for the one to enter the market of gold, just because of technical and not as much financial reasons. On the spot market what you buy you bring at home and this has been almost the only option for investors. All this require a lot of space and organization.

Today, investors have easy access to the market of gold thanks to the advanced technologies and the new alternative financial instruments. It is similar situation with the other alternative investments.

Many of the alternative investments require minimum amount to be invested and a fee to be paid These two main characteristics make them look very close to mutual funds and ETFs but still, there are indicative differences between them.