Alternative investments: a glossary guide to types, strategies, and how to start

What qualifies as an alternative investment?

At the simplest level, alternative investments are anything that isn’t a traditional stock, bond, or cash-equivalent. If you want a tighter definition focused specifically on non-traditional asset classes, see alternative assets: definition, types & how to invest. That includes things like private equity, hedge funds, real estate, commodities, collectibles, cryptocurrencies, and more. (SEC)

The SEC and FINRA both treat many of these products as “non-traditional” or “complex” investments, especially when they use leverage, derivatives, or unusual strategies. You can see this reflected in the SEC’s guidance on alternative mutual funds and FINRA’s page on alternative and emerging products. 

How alternatives differ from traditional investments

Traditional investments are usually:

• Publicly traded on major exchanges
  
  
• Highly standardized and widely followed
  
  
• Relatively liquid, with easy entry and exit
  
  

Alternative investments tend to:

• Trade privately or through specialized platforms
  
  
• Have different or lighter regulatory frameworks and disclosures
  
  
• Be less liquid, with lockups or limited redemption windows
  
  
• Require more specialized knowledge to evaluate (SEC)
  
  

Common characteristics of alternative investments

Most types of alternative investments share a few traits:

• Illiquidity: You can’t always sell when you want, at the price you want.
  
  
• Higher or different risks: Strategy risk, manager risk, leverage, and complex structures.
  
  
• Less transparency: Fewer standardized public filings than for listed stocks and funds.
  
  
• Complex fee structures: Performance fees, carried interest, or layered fund fees. (FINRA)
  
  

That’s why authorities like the SEC and FINRA repeatedly warn investors to read offering documents carefully and understand how an alternative product works before investing. For a practical framework you can reuse across deals, see due diligence: a glossary guide for investors.

Types of alternative investments

There are many types of alternative investments. Here are some of the big categories you’ll see most often.

H3: Real estate

Real estate is one of the most familiar types of alternative investments. It includes everything from single-family rentals to industrial warehouses and data centers.

Common real estate alternative investment strategies include:

• Direct ownership: Buying a property, collecting rent, managing tenants.
  
  
• REITs (Real Estate Investment Trusts): Public or private funds that own portfolios of properties.
  
  
• Crowdfunding platforms: Pooled investments into specific deals or diversified real estate portfolios.
  
  

Real estate can offer income, potential appreciation, and some protection against inflation, but it also involves market cycles, local risks, and often leverage.

Hedge funds

Hedge funds are pooled vehicles managed by professional managers that employ advanced strategies. Historically, they were built to “hedge” market risk, but many now focus on absolute return or opportunistic plays.

Typical alternative investment strategies used by hedge funds include:

• Long/short equity: Owning some stocks while short-selling others.
  
  
• Event-driven: Trading around mergers, restructurings, or special situations.
  
  
• Global macro: Making big-picture bets on rates, currencies, or commodities.
  
  

Many hedge funds use leverage and derivatives and are restricted to accredited investors. Retail investors might access similar strategies through so‑called “liquid alts” mutual funds, which the SEC describes as alternative mutual funds that still sit inside the registered-fund framework. (SEC)

Private equity & venture capital

Private equity (PE) and venture capital (VC) invest in companies that are not listed on public exchanges.

• Private equity usually targets mature businesses, aiming to improve operations and exit at a higher valuation.
  
  
• Venture capital backs earlier-stage startups that could grow quickly, or fail.
  
  

These funds are typically long-term (7–10+ years), with capital calls over time and real uncertainty about when you’ll get money back (SEC). Augment helps create access to such companies for accredited investors through the Collective and marketplace. This timing effect is a classic feature of private investing and is explained in investing in pre-IPO companies and the J-curve.

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Commodities

Commodities are raw materials such as:

• Precious metals like gold
  
  
• Energy products like oil and natural gas
  
  
• Agricultural goods like corn, soybeans, or coffee
  
  

You can gain exposure via futures, commodity-focused ETFs or mutual funds, or, in some cases, physical holdings. Commodities are often used as hedges against inflation or as diversifiers because their prices don’t always move in line with stocks and bonds. (SEC)

Collectibles & tangible assets

Collectibles and tangibles turn hobbies into potential investments. Examples include:

• Fine art and photography
  
  
• Wine and whiskey
  
  
• Vintage cars and watches
  
  
• Sneakers, comics, and trading cards
  
  

These assets can be hard to value and sell. Price depends heavily on demand, authenticity, and trends. Fractional-investing platforms now let people buy small slices of high-value collectibles instead of entire pieces, but the underlying risks stay the same.

Cryptocurrencies & digital assets

Cryptocurrencies and digital assets are arguably part of the newest corner of alternative investments.

This category includes:

• Major cryptocurrencies: Bitcoin, Ethereum, and similar assets
  
  
• DeFi tokens and stablecoins
  
  
• NFTs and tokenized real-world assets
  
  

Crypto can be extremely volatile and remains an evolving regulatory area. Some tokens offer staking, yield, or governance rights, but regulatory bodies are still clarifying how different digital assets fit into existing securities, commodities, and tax frameworks. (FINRA) 

Benefits of alternative investments

So why do investors bother with alternative investments at all?

1. Portfolio diversification

Different assets respond differently to economic changes. Adding alternatives that don’t move in lockstep with stocks and bonds can help smooth overall portfolio volatility over time. (HBS)

2. Potential for higher returns

Some alternatives—like private equity, venture capital, and certain hedge fund or private credit strategies—aim to capture opportunities that public markets can’t. These strategies may offer higher return potential, but with higher risk, complexity, and illiquidity.

3. Inflation and downside protection

Real assets like real estate and commodities have historically been used as hedges against inflation and certain market shocks. For instance, income from rental properties or infrastructure can sometimes behave differently when traditional equity markets are under pressure. (HBS)

Key risks and considerations

Now the uncomfortable part: what can go wrong?

1. Illiquidity

Many types of alternative investments:

• Have multi‑year lockups
  
  
• Allow redemptions only on a quarterly or annual basis
  
  
• Have thin or non‑existent secondary markets
  
  

This has been recognized and researched by the SEC as well (SEC) 

2. High entry barriers

Historically, alternatives were built for:

• Pension funds and endowments
  
  
• Family offices and high‑net‑worth individuals
  
  

That meant large minimums, accreditation hurdles, and thick subscription documents. New platforms and structures like our Collective are lowering some of those barriers for accredited investors. (SEC)

3. Regulatory and strategy tisk

U.S. regulators, such as the SEC and FINRA, closely monitor complex and alternative investments, especially when sold to retail investors, retirement savers, or older clients. Recent guidance emphasizes clear disclosures, suitability, and careful due diligence. (FINRA)

For private-market investing specifically, here’s a practical overview of SEC rules for private companies: what every investor should know.

4. Due diligence requirements

With alternatives, who you invest with is often as important as what you invest in. You’ll want to review:

• The manager’s experience and track record
  
  
• Fees and incentive structures
  
  
• Liquidity terms and lockup periods
  
  
• Conflicts of interest and risk disclosures
  
  

For more background on evaluating investment products in general, see the SEC’s Resources for Investors and the FINRA Investor Insights library, which both cover alternative and complex investments. 

How to invest in alternatives

Here’s how to think about how to invest in alternatives without turning your portfolio into a science experiment.

1. Decide on direct vs. fund-based exposure

You can approach alternative investments in two broad ways:

• Direct investing: Buying a specific property, startup stake, private note, or crypto asset.
  
  
• Fund-based investing: Using REITs, interval funds, private funds, hedge funds, or diversified private-credit vehicles.
  
  

Direct investing gives you more control, but typically requires more expertise and time. Funds outsource decisions to professionals but layer on their own fees and structures.

2. Use fintech platforms thoughtfully

Fintech platforms have made it easier to access:

• Real estate (crowdfunding and private REITs)
  
  
• Art and collectibles (fractional ownership)
  
  
• Private credit and structured income strategies
  
  

At Augment, our vision is to make private-market investments accessible so you can build a truly modern portfolio. Check out live deal flow via our Collective, the top companies in the private market in The Power 20 rankings, and get timely updates on the private markets via The Pulse.

3. Consider taxes and reporting

Certain alternative investments come with specialized tax forms and rules:

• Partnerships and many private funds report income via Schedule K‑1.
  
  
• Rental real estate and some passive investments are subject to passive activity and at‑risk rules.

A qualified tax professional can help you interpret how those rules apply to your situation.

4. Work with advisors when needed

If you’re allocating meaningful amounts to alternatives, a fee‑only financial advisor or RIA with alternatives experience can help:

• Match strategies to goals and time horizons
  
  
• Evaluate manager quality and alignment
  
  
• Integrate alts with your broader financial plan
  
  

Advisors can’t remove risk, but they can help you avoid obvious mismatches.

Who are alternatives for?

Alternative investments are tools best suited for:

• Long‑term, risk‑tolerant investors who can handle volatility and lockups
  
  
• High‑net‑worth individuals and families building multi‑asset portfolios
  
  
• Accredited investors using digital platforms to allocate a small portion to alternatives, as a complement to core holdings
  
  

For many people, alternatives are a satellite allocation, potentially 5–20% of a portfolio, depending on needs and risk tolerance, not the whole picture. (Investments and Wealth Org) 

Trends shaping the future of alternatives

The world of alternative investments is changing quickly.

1. Tokenization and fractional ownership

Blockchain technology is enabling tokenized interests in real estate, private credit, funds, and collectibles. That can:

• Lower investment minimums
  
  
• Improve secondary-market access
  
  
• Increase transparency around ownership and transfers.
  
  

For a deeper look at how tokenization is being applied in private markets, see private equity tokenization: how it works and real-world use cases.

The SEC’s Investor Advisory Committee has discussed ways to expand retail investor access to private markets while maintaining strong investor-protection “guardrails.” (SEC)

2. Impact and ESG in alternatives

Investors increasingly want returns and impact. That’s fueling:

• Climate-focused private equity and venture funds
  
  
• Renewable energy and infrastructure projects
  
  
• Social-impact real estate strategies
  
  

As ESG becomes more formalized, expect more reporting standards—and more scrutiny of “greenwashed” claims.

3. Democratization via digital apps

What once required a multi-million-dollar account and a family office now increasingly fits inside a phone app. Platforms like Augment aim to make private markets and alternative investments:

• Easier to discover and compare
  
  
• Easier to own in smaller, fractional slices
  
  
• Easier to track alongside public markets
  
  

That’s aligned with Augment’s broader vision of a truly accessible investing experience in the private markets.

Final thoughts

Alternative investments can add diversification, new sources of return, and access to unique opportunities that don’t show up in standard stock‑and‑bond portfolios. They also come with illiquidity, complexity, and the need for real due diligence.

For most individuals, the goal isn’t to become a full‑time private‑equity mogul. It’s to use alternatives thoughtfully, maybe some real estate, a slice of private markets, a carefully sized allocation to digital assets as satellites around a solid core.

If you’re curious about building a portfolio beyond the public markets – explore the tools, education, and opportunities across the Augment Blog, Collective, Manual, Pulse, and The Power 20 as you continue learning.