About Alternatives

The severe market downturns of 2000-2002 and 2008 have brought increased attention to the risk and return characteristics of alternative investments. Alternative investments are not new — some have their roots going back many decades. However, what is new is the heightened awareness of what they can add to an investment portfolio, as well as the increased number of products in the marketplace allowing accessibility among a wider range of investors.

Alternative investments can be broadly defined as those that are not traditional investments such as stocks, bonds, or cash equivalents like CDs or money markets. Types of investments that fall into the category of alternatives include hedge funds and managed futures — to name just two.

Alternative Investments can have several attractive characteristics. Two examples are: 

Return opportunities regardless
of overall market direction 
Potential to reduce portfolio volatility
via non-correlated returns
  • Traditional investments like stocks and bonds are generally reliant on rising markets to profit.
  • Alternative investments can pursue returns in both rising and falling markets.
  • The pursuit of returns in both bull and bear markets is commonly referred to as seeking "absolute returns". Keep in mind that absolute return investments are not intended to outperform stocks and bonds during strong market rallies.
  • The returns of many alternative investments have historically shown little to no correlation to traditional stock and bond investments over the long term.
  • Non-correlated assets may reduce portfolio volatility during difficult market periods.

 

 Learn more about Types of Alternatives

 See Glossary of Terms for definitions