The last financial crisis revealed many of the weaknesses of investment portfolios based on regular financial products. Firms went bankrupt, shares crashed in the international stock markets and investors saw their portfolios losing tremendous amount of value. It is logical for investors to be searching for new ways to invest their money and grow their wealth without being anxious about the various geopolitical and financial developments.

Investment portfolios consisting entirely of shares and bonds are now becoming a thing of the past. The allocation of funds exclusively to such assets does not provide either the requisite diversification or the expected long-term returns needed by investors. Alternative investments are critical here and are increasingly kept in the portfolios. A wide variety of goods and methods are categorized under the umbrella of alternatives. Leading global asset management firm BlackRock describes the industry as being narrowly divided into two main categories. Next, there are funds invested in non-traditional assets like utilities and immovable property. And secondly, investment strategies can invest in conventional assets, but they do so using non-traditional methods such as short-selling and leverage.

Investors are seeking to gain exposure to alternative investments because they offer a way of achieving adequate diversification and thus reducing portfolio risk, as well as generating higher returns than a strictly conventional portfolio. And it is possible to generate not only higher returns, but often higher absolute returns throughout the economic cycle, rather than being weighed against a market index.

A recent study by BCG Consulting Group showed that AUM in alternatives have been rising faster than for any other investment category, with the exception of passives. The market is vulnerable to shocks, particularly in the corporate sector, going into 2020 and this late stage of the cycle. If buyback-fuelled equity growth slows due to rising corporate finance costs and decreasing margins, we could enter the realm of bear market dynamics rapidly.

There is real value in incorporating diversifying sources of returns in this sense, along with the current state of fixed income markets. And while this strategy may be timely given the current market conditions, it is a long-term quality approach. Investors should, however, be cautioned against generalizing and advised to scrutinize the true source of success of managers.

Alternate investments can add substantial wealth to your retirement account, depending on your portfolio management. You will generate steady cash flow if you can pay the management fees and provide the funds for your investment. Sadly, in all different markets, control of alternative assets is not as strict. This leaves several potential investors vulnerable to theft if their due diligence is not done. Markets can also be volatile. Some of the investment opportunities may have a fluctuating demand, such as cryptocurrencies or real estate.

Alternative investments require thorough research and some knowledge of market mechanisms. If you don’t have the necessary knowledge it would be better if you seek the help of a professional advisor who would save you time and money.