Types of alternative investments: 22 examples explained
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Updated: June 27, 2024
Alternative investments is a broad category covering nearly any type of investment outside of the stock and bond markets. Alternative investments include everything from cryptocurrency and collectibles to real estate and beyond. Here’s a closer look at common alternative investments to help you navigate your options and find alternative investments aligned with your financial goals.
A comprehensive list of alternative investments
The following list of alternative assets is in alphabetical order.
1. Angel Investing
Angel investing is a type of investment typically reserved for wealthy individuals who want to put funds to work in early-stage companies that are looking to grow. With angel investments, the investor buys a percentage of the company, hoping its value will increase, exponentially. If the company is successful, the early investors can sell their stake for a significant payoff.
Who is it for?
Angel investors may be friends and family of the company’s founders, or experienced investors looking to get in on the ground floor of a new business. It’s best to only participate in angel investing with funds you can afford to lose.
How liquid is this asset?
Angel investments are not always easy to sell. It’s much more difficult to sell angel investments than traditional stock market investments.
Time horizon: Expected appreciation
Investors may have to wait years before they can liquidate their holdings. You may also be bound by contracts limiting your ability to sell until a specified lockup period expires.
2. Carbon credits
The carbon credits marketplace allows companies to pay to offset carbon emissions. For example, a company that produces one ton of carbon annually may pay to offset that carbon through green energy or forestry projects. Investors can get in on the action through carbon credit investment funds or with more significant, direct investments in carbon credit projects, such as the European Union cap and allowance program.
Who is it for?
Carbon credit exchange-traded funds (ETFs) are suitable for any investor looking to profit from environmentally friendly initiatives, while direct carbon credits are best for wealthy investors able to take on higher levels of risk.
How liquid is this asset?
Carbon credit ETFs are highly liquid and can be bought and sold like stocks through a brokerage account. Direct investments are much less liquid.
Time horizon: Expected appreciation
Carbon credits may be less predictable than other types of alternative investments. The holding time to earn a profit varies based on the specific carbon credit investment you choose.
3. Collectibles (rare coins, stamps, etc.)
Avid collectors are willing to pay a premium for items in good condition that fill a gap in their collections. Baseball cards, coins, stamps and many other items are frequently purchased by collectors looking to put together a complete set. If you can buy for a low price and sell for a premium, you can earn a hefty profit.
Who is it for?
Investing in collectibles is best for those with plenty of time to build expertise and evaluate each item.
How liquid is this asset?
Collectibles can be easy to sell in some cases, particularly when there’s a strong market for the items on sites like eBay. However, it’s possible you could get stuck with something or struggle to sell for an ideal price.
Time horizon: Expected appreciation
Collectibles' values rise and fall with demand. Trendy items, such as Beanie Babies in the 1990s, could also see its value plummet, quickly.
4. Commodities
Commodities include precious metals, agricultural goods and other valuable assets frequently traded through established commodities markets. Commodities can be extremely risky, and prices can change quickly, so it’s essential to understand what you’re doing if you venture into this type of alternative investment. Commodities investments are often made through options and futures contracts.
Who is it for?
Commodities are best for expert investors with a strong knowledge of how market conditions may influence asset prices.
How liquid is this asset?
Commodities options and futures are typically easy to sell through established marketplaces at the current market price.
Time horizon: Expected appreciation
In some cases, commodities can experience fast price increases (or decreases). Investment time horizons typically range from days to months.
5. Crowdfunding (real estate, startups, etc.)
Crowdfunding is an alternative investment in which individuals pool their money to buy a share of a specific investment or group of investments. Crowdfunded investments include real estate, loans, artworks and new startup businesses. Risk and minimum investment amounts vary across asset types and platforms.
Who is it for?
Many crowdfunding investments are limited to accredited investors, a class of investors defined by the Securities and Exchange Commission (SEC) requiring a minimum income or net worth or meeting other conditions.
How liquid is this asset?
Crowdfunding investments are sometimes easily sold through a secondary market, while others may lock in your funds for a longer period.
Time horizon: Expected appreciation
Many crowdfunded investments require a holding period of several years. Others, such as real estate funds, may offer an ongoing investment period.
6. Cryptocurrencies
Cryptocurrencies are digital currencies tracked with transparent, public ledgers called blockchains. They are very risky and volatile, so most investors should only invest in them with what they can afford to lose. Popular cryptocurrencies include Bitcoin, Ethereum, Dogecoin and Stellar Lumens. There are more than 10,000 different cryptocurrencies, though many are worthless.
Who is it for?
Cryptocurrencies are best for investors who are willing to take on a high level of risk in exchange for large potential returns.
How liquid is this asset?
Popular cryptocurrencies are extremely liquid and can be sold through major exchanges with a few clicks.
Time horizon: Expected appreciation
Some cryptocurrency enthusiasts frequently trade to take advantage of swings in currency prices. Others are long-term investors who HODL (hold on for dear life) and look for price appreciation over many years.
7. Farmland
Some of the wealthiest people in the United States, including Bill Gates and Ted Turner, own large swaths of farmland. Farmland can generate regular revenue through leasing to farm operators, and the land may also grow in value over time. Farmland investments are available through direct investments and crowdfunded marketplaces.
Who is it for?
Direct farmland investment is best for wealthy individuals looking to diversify their holdings. Crowdfunded farmland investing is suitable for most accredited investors looking to expand their investments beyond the traditional markets.
How liquid is this asset?
Farmland is a type of real estate, so liquidity varies based on a wide range of factors, including location and suitability for various agricultural needs.
Time horizon: Expected appreciation
Farmland investments are typically long-term, with holding periods often exceeding 10 years.
8. Film financing
Film financing is a type of alternative investment offering the ability to put your cash into the production of a movie. You could see large returns if the feature film is a box office hit. But you could have significant losses if the movie doesn’t do well. You may be able to invest individually if you have substantial assets or through a crowdfunding platform to split the risk with other investors.
Who is it for?
Film financing is a risky proposition, so it’s best for financially secure households who can afford to lose their investment.
How liquid is this asset?
Film financing is an illiquid asset class. You likely can’t sell your stake in the film.
Time horizon: Expected appreciation
Film productions can take years to go from idea to release. Plan on a long-term investment before seeing any payoff.
9. Fine art
Fine art often rises in value over time, and famous creators' artworks can sell for millions. If you can buy artwork, or a portion of artwork through a crowdfunding platform such as Masterworks, you may see the value increase enough to earn a significant profit.
Who is it for?
Fine art investing is typically best for investors who already have a significant portfolio and want to diversify into a potentially lucrative asset class.
How liquid is this asset?
Fine art investments can be challenging to value and sell, making them far less liquid than a stock market investment.
Time horizon: Expected appreciation
Fine art investments typically require holding the work for years. Expect a minimum investment horizon of around five to 10 years, if not much longer.
10. Hedge funds
Hedge funds are loosely regulated investment funds designed for wealthy individuals who can take on higher levels of risk for potentially high returns. They invest in diverse assets, including stocks and direct investments in companies. Fees are typically relatively high and focus on rewarding managers for generating outsized returns.
Who is it for?
Hedge fund investments are generally limited to high-net-worth households that can take on significant risk.
How liquid is this asset?
Liquidity varies by fund, with some enforcing lengthy lockup periods and others allowing more timely sales
Time horizon: Expected appreciation
Hedge fund investors should plan on holding the investment for several years or longer.
11. Infrastructure funds
Infrastructure funds are diversified investment funds focused on large-scale infrastructure projects. Holdings often include power plants, water systems, communications networks and oil and gas pipelines. These funds may purchase bonds for specific projects or invest in infrastructure-focused companies. Because government infrastructure projects are not reliant on economic conditions, they can be considered a hedge against an underperforming economy.
Who is it for?
Infrastructure funds are suitable for many investors looking to diversify and stabilize their portfolios.
How liquid is this asset?
Many infrastructure funds are publicly traded, so you can sell at any time during regular market hours.
Time horizon: Expected appreciation
While you may see some gains in the short term, most infrastructure fund investments should be held for a long-term payoff.
12. Legal settlements
Legal settlement investing is a method of investing in the expected future payoff from a lawsuit. Investors provide cash upfront to plaintiffs and are repaid, plus interest or an agreed-upon return, when the lawsuit is paid. However, the investors could lose their investment if the lawsuit doesn’t pan out.
Who is it for?
Legal settlements can be risky and are best suited for experienced investors who can comfortably wait for their return without a need to get the funds back, quickly.
How liquid is this asset?
Legal settlements are general, not liquid. Most investors will have to wait for the lawsuit to settle to exit the investment.
Time horizon: Expected appreciation
The time horizon varies depending on the specific legal case, often requiring months or years before seeing a return.
13. Litigation finance
Litigation financing allows investors to invest in legal cases. The funding goes toward legal costs, and the investor gets their money back plus a fee if the case is won. Litigation finance often focuses on sizable business lawsuits. There is a high risk that the suit won’t work out in the plaintiff’s favor, but if they win, the payoff for investors can be significant.
Who is it for?
Litigation finance is best for high-net-worth households that can wait long for any potential payout.
How liquid is this asset?
Litigation finance investments are illiquid and difficult, if not impossible, to exit before the lawsuit concludes.
Time horizon: Expected appreciation
Investors should plan on waiting for months or years before getting their money back, plus any agreed investment return.
14. Livestock
Livestock is a commodity available to investors through commodities markets or options and futures contracts. Prices can swing quickly based on supply and demand, so it’s best to only invest if you have sufficient time and experience to track and manage your investment closely.
Who is it for?
Livestock, like other commodities, is best for experienced investors who can afford significant losses if the investment doesn’t work out as expected.
How liquid is this asset?
Livestock investments using options and contracts are highly liquid and can be easily sold on their respective markets.
Time horizon: Expected appreciation
As with other commodities, livestock investments can be volatile. You may want to sell quickly to capture a profit or hold for a longer period, if it aligns with your strategy.
15. Peer-to-peer lending
Peer-to-peer lending is a crowdsourced alternative investment where investors pool their money and lend it to individual borrowers. An example of a popular peer-to-peer lending platform is Prosper. The borrower pays the loan back over time with interest, and the lending platform takes a small fee to facilitate the loan.
Who is it for?
Peer-to-peer lending is best for stable investors who can analyze each loan and make informed lending decisions with an understanding of each borrower’s risk profile.
How liquid is this asset?
Peer-to-peer loans can sometimes be sold through third-party marketplaces but otherwise are not liquid.
Time horizon: Expected appreciation
Investors in peer-to-peer loans should expect to wait for the loan term to complete to get their funds back, often around three to five years.
16. Precious metals
Precious metals include gold, silver, copper, platinum and other valuable metals. In addition to buying and selling physical assets, you can invest in these alternatives through ETFs. Precious metal ETFs track the value of the underlying asset. Some investors look to gain exposure to precious metals by investing in mining companies that profit from extracting and selling precious metals.
Who is it for?
Precious metals ETFs are suitable for most investors who want to diversify and believe the value of the metals will increase over time.
How liquid is this asset?
While selling physical metals requires a little more work, you can sell precious metals ETFs like stocks, during market operating hours.
Time horizon: Expected appreciation
Due to the costs involved, physical metals holdings should be considered long-term investments. ETFs can be sold at any time.
17. Private equity
Private equity is an investment in which a fund manager buys and sells entire companies to make a profit. Private equity funds look to increase the value of portfolio businesses through various means, including dramatically cutting costs, adding efficiencies to operations and increasing prices. When the company becomes more valuable, it can be sold for a profit.
Who is it for?
Private equity is generally limited to wealthy investors with extensive investment experience.
How liquid is this asset?
Private equity investments are typically illiquid and require minimum investing periods with limited windows for redemptions.
Time horizon: Expected appreciation
Private equity investments are long-term and may require years before you’re able to withdraw funds for a profit.
18. Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are a business structure where a company or fund manager buys and manages properties on behalf of investors. REITs must pay out a significant portion of earnings as dividends. You can find REIT investment funds and individual companies that operate as REITs listed on public stock markets. Many REITs focus on specific property types, such as residential, commercial, retirement homes, casinos, golf courses, hotels or a combination of property categories.
Who is it for?
REITs are appropriate for most general investors who are looking to increase exposure to real estate in their portfolios.
How liquid is this asset?
Most REIT stocks and ETFs are highly liquid and can be quickly sold during stock market hours.
Time horizon: Expected appreciation
REITs don’t typically come with a minimum investment period, but the nature of real estate makes REITs best for long-term investors.
19. Royalties (music, patents, etc.)
Royalty investments allow you to buy a share of future earnings generated by intellectual property. Investors may be able to buy into a single property or a portfolio. Music and patents are among the most common available royalty investments. While they used to be difficult for individual investors to find, new platforms make buying shares in a royalty investment easier. Sites like Royalty Exchange and SongVest offer royalty-specific investments, or you can look for royalty trusts in the public stock markets.
Who is it for?
Royalty investing is best for educated and experienced investors who know how to value the expected cash flow from the royalties.
How liquid is this asset?
Royalties have varying levels of liquidity, depending on where and how you invest. Direct investments are less liquid, while marketplaces and funds may be more easily sold.
Time horizon: Expected appreciation
Royalties are a long-term investment typically lasting many years.
20. Timberland
Timberland is an investment in land for growing trees and harvesting them for lumber. Timber ETFs and timberland-focused REITs can expose you to timberland investments without directly buying and managing properties. In addition to earning from the appreciation of the underlying land, investors should expect dividends based on the forest’s growth and lumber output.
Who is it for?
Timberland ETFs and REITs are a type of alternative investment suitable for a wide range of investors who believe this type of investment will perform well in the long term.
How liquid is this asset?
Publicly traded REITs and ETFs are highly liquid and can be sold through your favorite brokerage during market hours.
Time horizon: Expected appreciation
Timberland investments are generally long-term holdings that should be held for years.
21. Venture capital
Venture capital is a term for investments in early-stage companies. Venture capital typically occurs through specialized funds that invest in many companies, expecting that some will fail and others will generate outstanding returns, with a return of investment of at least 10 times, or even more than 100 times the amount invested.
Who is it for?
Venture capital is best for experienced investors who can tolerate volatility and losses.
How liquid is this asset?
Venture capital invests in companies before they’re publicly traded on the stock market, making it an illiquid investment type.
Time horizon: Expected appreciation
Venture capital investments typically last for at least a few years, if not more.
22. Wine and spirits
Certain wines and spirits improve with age, and investors can buy and hold for several years before reselling at a much higher price. These holdings can be risky and speculative, as the asset price growth can be unpredictable. However, payoffs can be very impressive for experienced investors with wine or sought-after whiskey expertise.
Who is it for?
This type of alternative investment is best for experts who can afford to lose their money if the value doesn’t grow as expected.
How liquid is this asset?
These investments are literally in a liquid, but they’re not necessarily easy or quick to sell.
Time horizon: Expected appreciation
Buyers should plan to hold the bottles or barrels for a number of years before seeing any profits.
Note: Alternative investments may experience high volatility, lack of liquidity and limited regulatory oversight. Investors should conduct thorough due diligence and seek professional advice before investing, as losses are possible.
Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time.
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