We’d all like our money to be working hard for us. We want decent returns, but we also want to manage our risk. Diversifying our portfolios is one tool for achieving these goals. This doesn’t just mean owning different stocks, but owning different asset classes as well.
Must Read
One way to do this is to own alternative assets. These are assets that aren’t classified as stocks, bonds or cash. Common examples include commodities, cryptocurrencies, collectibles and art, precious metals, real estate, real estate investment trusts (REITs), hedge funds, farmland, venture capital and private equity.
An October 2025 survey by Charles Schwab found that nearly half (45%) of American investors are at least somewhat interested in owning alternative assets and another quarter (23%) currently or have previously owned them (1). Additionally, 67% of investors believe successful investing today requires looking beyond stocks and bonds.
Why consider alternative investments?
Financial advisors are responding to this demand, with 92% incorporating alternative assets in their clients’ portfolios and 91% planning to increase allocations over the next two years, according to a survey by CAIS and Mercer (2).
There are said to be three reasons advisors are increasingly interested in alternatives. “There is the diversification and the lack of correlation with other assets. Secondarily, there is the potential for upside growth and capital gains. And the third is risk mitigation, some type of protection on the downside,” said Loren Fox, director of research at FUSE Research Network, to Wealthmanagement.com (3). “It’s becoming more and more common for advisors to think that somewhere around 5% to 10% of a client’s portfolio could be in a mix of alternative assets to provide that diversification and potential extra boost to upside growth.”
Even the U.S. administration is throwing its support behind alternative assets. In August, President Donald Trump signed an executive order directing the U.S. Secretary of Labor to review fiduciary guidance for inclusion of private market assets in 401(k)s and other defined contribution plans. This could eventually lead to such assets as real estate and cryptocurrencies being permissible investments in these plans.
But investors must be careful not to get carried away. “Although there is constant noise in the investment landscape, chasing fads or the latest headlines can negatively impact an investor’s portfolio in the short and long term,” Andy Reed, head of behavioral economics research at Vanguard, told CNBC, adding that those saving for goals such as buying a house are likely better off in traditional investments for the bulk of their portfolio (4).
A cautious approach to some alternative investments may be warranted because they may be riskier than traditional investments. Like most investments, many alternative investments have some market risk, where their value will fluctuate due to factors such as economic conditions and investor sentiment. But they also face additional risks that are less commonly seen with stocks and bonds.
Read More: Many Americans overpay for these 5 ‘must-have’ items — how many are on your list?
Alternative investments may be less liquid, which means they’re harder to sell quickly at a fair market price. Some are even subject to lock-up periods, during which investors’ ability to sell them is restricted. They also tend to be less regulated, which can increase investors’ risk of fraud or mismanagement.
They can also be more complex and less transparent than traditional investments. This can make them harder to research, value and monitor. In the case of some hedge fund and structured products, alternative investments may expose investors to counterparty risk and leverage within the product, but the lack of transparency can keep this hidden.
A safer way to tap alternatives
Given these risks, Cathy Curtis, the founder and CEO of Curtis Financial Planning in Oakland, Calif., told CNBC that she recommends allocating only 10% to 15% of your portfolio to alternative assets if you have a large portfolio, and less than 5% if you have a smaller one.
Similarly, Amy C. Arnott, a Morningstar portfolio strategist, recommends limiting your holdings of alternative assets to 15% or less (5). “But given alternatives’ complex strategies, often hefty expense ratios, and lackluster long-term performance, most investors are probably better off allocating significantly less than that to alternatives or even skipping them altogether,” she wrote.
The exact amount should be determined by working with your financial advisor and assessing your goals and risk tolerance.
One strategy that can help investors avoid the complexities and mitigate the risks of alternative assets while still gaining exposure to alternative strategies is to invest in exchange-traded funds (ETFs). ETFs are widely owned and, as their name implies, they’re traded on exchanges, which means they’re liquid and regulated, even if they’re based on underlying alternative assets that aren’t.
ETFs are available for investing in alternatives as an asset class as well as individual alternative asset classes such as real estate, commodities and currencies.
If you haven’t previously thought of alternative investments but would like to diversify a small portion of your portfolio away from traditional investments, speak to your advisor about potential sectors and vehicles.
What To Read Next
Join 200,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Charles Schwab (1); Mercer (2); Wealthmanagement.com (3); CNBC (4); Morningstar (5)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.