What are alternative investments?

Alternative investments are defined as investments that do not fit into the conventional categories of stocks, bonds, or cash. This category encompasses a wide range of assets, including real estate, hedge funds, private equity, commodities, collectibles, and more. The key characteristic of alternative investments is their divergence from traditional asset classes, which typically are stocks and bonds. These investments often behave differently than traditional assets and may provide diversification benefits within a portfolio.

The notion behind alternative investments is that they can offer unique risk-return profiles, access to unique opportunities, and sometimes less correlation with the behaviors of the traditional markets. This characteristic can be especially valuable during periods of economic uncertainty or market volatility, as they may not be subject to the same market forces that influence traditional investments.

Thus, defining alternative investments as those that do not fall into the traditional categories aptly captures their essence, making this the correct choice.