When new tariff policies were announced in the spring of 2025, investors feared the breakout of a global trade war and a potential economic recession. This caused stocks and bonds to sell off and generally upset public financial markets.¹ In uncertain times such as these, some investors may strive to build more resilient portfolios by including alternative investments such as real estate and other real assets, private equity, private credit, and hedge funds.
Alternative investments can help increase portfolio diversification because their returns tend to have low or negative correlations with traditional assets such as stocks, bonds, and cash — meaning they have historically performed differently under various market conditions. Thus, some alternatives could maintain their value, or perhaps even gain in value, during periods when public stock and bond markets are struggling.
Another stabilizing feature of certain alternative investments (real estate, private credit and infrastructure, for example) is that they are designed to provide steady income regardless of short-term fluctuations in market prices, though there is no guarantee that they will. Moreover, these types of investments are not as liquid as bonds and dividend-yielding stocks, primarily because there may be restrictions on when they can be sold, and secondary markets may be limited or nonexistent.
There are many different types of alternative investments, and new opportunities to invest in them are popping up every day. Here’s a quick introduction to some commonly used options.
Real estate and other real assets
Real assets are tangible goods with intrinsic value based on physical qualities and/or potential to generate revenue from their real-world use. (Financial assets such as stocks and bonds derive their value from claims on current and future cash flows.)
Real estate is an option as an alternative investment. Whether owned directly or through private or publicly traded Real Estate Investment Trusts (REITs), residential and commercial property can typically generate reliable income along with inflation protection, because rents tend to increase over time.
The value of a traded REIT will depend on fluctuations in the value of its real estate holdings as well as investor sentiment and market volatility. The value of a nontraded REIT is directly based on the value of its underlying real estate holdings. All REITs are subject to the risks associated with the real estate market in general. Also, some types of REITs are considered more illiquid than others, which could mean problems if you need to sell quickly.
Of course, there are inherent risks associated with real estate investments and the real estate industry, each of which could have an adverse effect on the financial performance and value of a real estate investment. Some of these risks include: a deterioration in national, regional, and local economies; tenant defaults; local real estate conditions, such as an oversupply of, or a reduction in demand for, rental space; property mismanagement; changes in operating costs and expenses, including increasing insurance costs, energy prices, real estate taxes, and the costs of compliance with laws, regulations, and government policies.
Bear in mind that physical real estate can be highly illiquid, may involve more work on your part to manage, and may be subject to weather hazards, rezoning, or other factors that can reduce the value of your property.
Beyond real estate, the list of investable real assets is long and varied. It includes natural resources (timberland, farmland, oil, gas, and mineral rights), tradable commodities often derived from natural resources (metals, lumber, livestock, agricultural and energy products), and infrastructure investments (roads, pipelines, data centers).
As an asset class, commodities may help blunt the impact of inflation on investor portfolios. When the prices of goods and services are rising, higher costs for energy and/or other commodities are often part of the reason, balancing out any negative impact on stocks or bonds. Precious metals (gold, silver, and platinum) may act as a hedge against inflation caused by currency depreciation. Thus, they have often been viewed as assets that can help protect wealth during financial crises, economic recessions, and periods of geopolitical unrest or war.
Commodity prices often rise during times of crisis or uncertainty, but they can quickly lose value as stability and clarity returns. Buying commodities may help broaden diversification for experienced investors who are prepared to assume the inherent risks, but any purchase represents a transaction in a non-income-producing commodity and is highly speculative.
Investing directly in natural resources and commodities is often inconvenient and may involve special concerns; for example, gold bullion or oil barrels can be costly to transport, store, and insure, while agricultural products and energy infrastructure could suffer damage from extreme weather or natural disasters. For many individual investors, it’s simpler to invest in these types of alternative assets indirectly, through mutual funds or exchange traded funds (ETFs). Still, these pooled investment vehicles are subject to the same risks as their underlying assets.
Private equity, private credit, and hedge funds
Private equity investing entails taking an ownership stake in companies that are not traded on public stock exchanges. Private-equity firms often are involved directly with management of the businesses in which they invest. Investors should have a long-term focus, because it may take years to produce any meaningful returns. In fact, many funds have 10-year time horizons, during which investors may not have access to their money. On the plus side, investor returns may depend more on business fundamentals, company profits, and long-term value, and be impacted less by the emotional (or speculation-driven) swings of the broad public stock market.
Similarly, private credit involves lending to companies outside of traditional bond markets. Opportunities to invest in private credit expanded rapidly over the last decade as investors sought higher yields.² But as usual, investments that offer higher yields are compensating investors for taking on greater risk. Private credit funds often finance smaller, less established, or heavily indebted companies that may be more vulnerable to economic challenges than large, public firms. Private borrowers aren’t required to disclose detailed financial reports and material information like public companies must, making it harder to assess their true health and creditworthiness. Plus, deal structures can be highly customized, which can make it difficult to evaluate and compare the terms of potential investments.
Hedge funds often employ aggressive trading strategies, including long and short positions, arbitrage, leverage, and derivatives. As the name implies, the fund manager may rely on hedges, or opposing investment positions, to help insulate the fund from market downturns.
Private equity, private credit, and hedge fund offerings generally aim to boost portfolio returns, but they also entail higher fees, less transparency, and greater risk. As such, they typically require a large investment and are available only to “accredited investors” who meet SEC-mandated net worth and income requirements.
If you are interested in incorporating alternative investments, it might be wise if they only make up a relatively small share of your overall portfolio and be consistent with your investment objectives and overall financial situation. Because of the complexities, consider seeking guidance from a financial professional.
Each alternative asset type involves its own unique risks, including the possible loss of principal, and may not be suitable for all investors. The unique properties of alternative asset classes also mean that they can involve a high degree of risk. Because some are subject to less regulation than other investments, there may be fewer constraints to prevent potential manipulation or to limit risk from highly concentrated positions in a single investment. Performance, values, and risks may be difficult to research and assess accurately. There is no guarantee that any investment strategy will be successful. Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. There is no assurance that working with a financial professional will improve performance.
Mutual funds, ETFs, and REITs are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
- USA Today, April 12, 2025
- The Federal Reserve, 2025
This content has been reviewed by FINRA.
Prepared by Broadridge Advisor Solutions. © 2026 Broadridge Financial Services, Inc.