An alternative investment, in a nutshell, is anything that doesn’t fit into the traditional investment lexicon of stocks, bonds, cash. Alternative investments include such things as hedge funds, commodity and managed futures, private equity, alternative credit strategies, real estate and venture capital.
I like to think of an Alternative Investment as the following:
• An investment strategy that, until recently, has only been available to the wealthy and the institutions that serve them.
• An investment strategy that the status quo (read banks and traditional investment managers/brokers) like to cast aspersion towards in an attempt to discredit it and scare investors into staying with the traditional asset classes of stocks, bonds and cash so that the status quo doesn’t have to work too hard to make lots of money off of those investors.
• An investment strategy that offers a unique risk and return profile that can complement or, better yet, replace traditional investments so that you can make money consistently even when the world’s casinos (stock markets) act “irrationally” and go down in value.
I’m not a conspiracy theorist, but I do find it strange that Canadian securities’ regulators have put in place certain restrictions on who can invest in alternative investments that have, in effect, kept these investment options open only to the already wealthy. To be fair, I think in their minds they were protecting those of us who weren’t wealthy from taking on too much risk with what little we did have.
Thinking Outside the Box
Unfortunately, their rules had the opposite effect and forced less well-off Canadians to stick with traditional investments, which are far riskier either from the point of view of actually losing money or not making a high enough return to stay ahead of inflation.
Thankfully, alternative investment managers are typically great at thinking outside the box and pushing change and rules have recently softened allowing any Canadian to access alternative investments that provide stable, consistent and de-risked returns to help grow and protect their investment portfolios.
As one example showing the difference between a traditional investment (the S&P/TSX 60 total return index), a bank-protected investment (5 year GIC) and an alternative investment (Crystal Wealth Mortgage Strategy), take a look at the chart below. Of course, past performance is no guarantee of future performance, etc, etc.