An alternative investment is an investment that falls outside the conventional categories of cash, stocks and bonds.
Examples of alternative investments include everything from venture capital and commodities like gold and other precious metals right through to stamps, antiques, and rare whisky bottles. Even real estate is sometimes classed as an alternative investment.
Because it covers such a huge range of different assets, alternative investments aren’t typically as well regulated as conventional investments. This means they often lay beyond the scope of regulators like the SEC & FCA. As a result of this, it is vitally important that potential investors carry out extensive due diligence to safeguard their portfolio.
Alternative investments also tend to be somewhat illiquid in comparison to conventional stocks. This means that they can sometimes be harder to sell, as interest or trading activity might not be as high. For example, it’s more likely that an investor would find it a lot trickier to sell a rare bottle of whisky than they would shares in a company like Amazon or Google.
#How Do Alternative Investments Work?
Although alternative investments cover a broad range of items, there is one thing they all have in common. Whether it’s a fine painting, a unique stamp or coin or a rare bottle of wine, most alternative investments have quite high minimum pricing structures – meaning they are very expensive to buy.
Because of this, a large portion of alternative assets are held by the very wealthy, like institutional investors or high-net-worth individuals. However, through methods such as Exchange-traded funds (ETF), it is possible for retail investors to get in on the action and have their own piece of the pie.
These are sometimes also known as ‘alt-funds’ and they can be a great way for retail investors to gain access to previously difficult and costly asset categories. As an added bonus, because the funds are publicly traded, they are also registered and regulated by the authorities, providing a little more security for your investment.
Alternative investments can be traced back to 17th century tulip farmers in the Netherlands. As the colourful flowers became more popular, speculation pushed their value higher and higher. At the height of their popularity, they were worth more than 6x the average salary of the country.
Alternative investments often have a lower correlation with traditional asset classes like stocks, meaning their price movements are not always directly tied to the stock market. However, this does not mean they always move in the opposite direction. Some alternatives, such as gold and certain hedge fund strategies, may act as safe havens during stock market downturns, while others, like private equity and venture capital, can still be affected by broader economic conditions. Due to their diverse characteristics, alternative investments can help enhance portfolio diversification, but their effectiveness depends on the specific asset class and market environment.
#Types of Alternative Investment
Like we’ve already said, alternative investments cover a wide range of assets, some of which are better known than others. To help take the hassle out of figuring out what is or isn’t an alternative investment, we’ve put together a helpful list.
What follows is by no means an exhaustive list, but represents a broad cross section of different types of alternative investments:
Collectible Wine and Spirits
Whether it’s a fine wine or an aged single malt whisky, the collectible drinks market has been thriving in recent years. This asset class has seen astonishing growth rates over the last decade, with the 2020 Knight Frank’s Wealth Report showing an astronomical 564% growth in the value of rare whisky over the last ten years. However, this settled and The Knight Frank Luxury Investment Index for Q4 2023 showed a 280% rise in rare whisky bottles over the ten year period.
In October 2019, a 60-year-old single malt from the renowned Highland distillery, The Macallan, made headlines when it sold at auction for a staggering £1.5 million. This rare bottling set a world record at the time, marking a £300,000 increase from a similar sale just a year prior, highlighting the rapid appreciation in value. The Macallan reclaimed this record in 2023 when a bottle of the ultra-rare Macallan Adami 1926 sold for an astonishing £2.2 million ($2.7 million). Aged for 60 years in sherry casks before being bottled in 1986, this coveted whisky is one of only 40 ever produced, making it one of the most sought-after collectibles in the spirits market.
If you’re interested in starting a collection, Sotheby’s guide to building a whisky collection lays out seven key points that connoisseurs typically consider: age, rarity, style, vintage statement, bottling, storage, and design. Famous distilleries to look out for include Dalmore, Lagavulin, Springbank, Ardbeg, Brora, Bowmore, and Macallan.
Precious Metals
Precious metals like gold are among the most well-known ‘safe haven’ assets, with prices tending to rise in times of recession. There are various ways to add precious metals to a portfolio, such as buying physical bullion in the form of minted bars or coins. Or, alternatively, they can buy futures contracts for the metal in question.
Many turned to this asset in 2020 as the Covid-19 pandemic wreaked havoc on stock markets. As a result, gold passed the $2,000 an ounce mark for the first time in history and silver saw a huge spike to more than $20 an ounce from less than $14 at the end of 2019. In 2025, gold approached $3,000 an ounce as geopolitical uncertainty fuelled central bank buying.
Precious metals, especially gold, have benefitted in particular from quantitative easing (“QE”) measures in the modern era. Since such action was introduced in the wake of the 2008 financial crash, the US Federal Reserve has struggled on more than one occasion to stop issuing new credit through QE and reduce its balance sheet. But, each time, markets took fright and the policy was reversed.
Cryptocurrencies
Cryptocurrencies are virtual currencies secured using cryptography, making them next to impossible to counterfeit. In general, these digital currencies are also not issued by a central authority, unlike the traditional currencies issued by central banks.
Bitcoin is undoubtedly the most well-known cryptocurrency and its value has taken incredible leaps in the past ten years. In April 2011, a single Bitcoin was worth just $1 but it has experienced some incredible growth – and sharp dips – in the years that have followed. Today, the average price of a single Bitcoin will now cost somewhere around $92,000 (accurate at time of writing), up from around $38,000 in 2021.
There are also a host of other cryptocurrencies, including high profile examples like Ethereum, as well as the unexpected success story of Dogecoin. Dogecoin was created in 2013 as a tongue-in-cheek response to the cryptocurrency boom and gets its name from a popular meme at the time featuring a Shiba Inu dog.
Volatility in the crypto space makes investment particularly risky. Even the most established of these currencies, Bitcoin, was created just twelve years ago. As a result, the unknowns in this new and emerging space vastly outnumber the knowns, both good and bad.
Crowdfunding
Crowdfunding enables businesses to raise capital from a broad pool of individual investors rather than relying on banks or institutional lenders. The industry has evolved significantly, incorporating blockchain-based funding mechanisms and AI-powered platforms that improve investor-business matching.
Equity crowdfunding allows investors to acquire shares in private businesses, offering potential upside if the company grows or goes public. In recent years, enhanced regulation has improved investor protections, and some platforms now facilitate secondary trading, providing greater liquidity.
Debt-based crowdfunding, including peer-to-peer lending and invoice financing, allows investors to lend capital to businesses or individuals in exchange for interest payments. AI-driven credit models are increasingly used to assess risk, and institutional investors are becoming active participants in this space. However, regulatory scrutiny has tightened following past mini-bond failures.
Overall, crowdfunding has expanded beyond consumer startups, with investors now able to back high-growth sectors like climate tech, AI, and space exploration, offering a diverse range of opportunities to align financial goals with personal interests.
Green Alternative Investments
Investors are looking beyond traditional assets to support sustainable forestry, regenerative agriculture, and carbon credit markets. Private funds are increasingly focusing on sustainability-linked investments.
#What are the Advantages of Alternative Investments?
There are several compelling reasons to incorporate alternative investments into a portfolio, particularly as a hedge against market volatility. One of the key advantages is their relative independence from traditional stock market fluctuations, making them increasingly attractive during periods of economic uncertainty.
Unlike publicly traded equities, which are highly sensitive to macroeconomic events and geopolitical shifts, many alternative assets retain intrinsic value regardless of external turmoil. The demand for a Rembrandt painting or a rare bottle of Macallan 1926 is unlikely to be swayed by changes in political leadership or global crises.
Additionally, alternative investments often have a tangible, fixed underlying value, providing stability that stocks lack. While publicly traded shares can experience extreme price swings—or, in some cases, plummet to zero—assets like fine art, precious metals, or high-end collectibles maintain inherent worth, offering a degree of security not typically found in traditional financial markets.
#What are the Risks of Alternative Investments?
As previously stated, while many alternative asset classes have some type of regulation, this is far from universal. It is this lack of policing that has to be the biggest drawback when it comes to this investing style.
Bottom line is, when going it alone – perhaps by building your own art or stamp collection– it can be hard to avoid pitfalls and scams. For example, a painting might be fake or an artist far less renowned than claimed.
Not only that, but alternative investments are also often always in the same asset class. For example, a collector may own a large art collection or several rare stamps, which introduces concentration risk.
Finally, tax changes are also a worry. Changes in tax legislation might bring trouble, but it’s not always straightforward to sell.
#Where’s the ‘Value’?
Variety is the spice of life: there are an extraordinary array of alternative investments, each with their own strengths and weaknesses. Choosing which path to take can be complex, but also highly rewarding.
The personal touch: often, alternative investing offers a chance to own something with both personal and economic value. A collection of beautiful paintings, perhaps, or delicious whiskies.
Try new things: there is also the opportunity to invest in an exciting new technology, like cryptocurrency, or a brand-new business venture.
Express yourself: for anyone seeking to move beyond well-trodden paths, alternative investing offers a chance for expression and creativity as well as sensible diversification.
#Market Trends and Data
Alternative investments have evolved significantly since 2021, with fractional ownership, AI-driven asset selection, and tokenized real assets gaining traction. Include updated statistics on market performance and adoption rates for alternative assets. Private equity and private credit are experiencing increased investor interest, particularly as traditional fixed-income yields remain low. Highlight this trend.
Blockchain and tokenization: The rise of tokenized real estate, collectibles, and fine art allows greater accessibility for retail investors. Blockchain-based trading platforms have reduced illiquidity concerns.
AI-driven investment strategies: AI-powered investment tools are now influencing portfolio management for alternative assets, helping investors assess risk, predict appreciation, and optimize diversification.
Institutional Adoption: Major pension funds, sovereign wealth funds, and asset managers are increasingly allocating capital to alternative investments.