Why Advisors Should Understand Categories of Alternative Investments

The investment landscape is rapidly evolving, and financial advisors who stay ahead of the curve recognize the importance of alternative investments. These non-traditional assets—ranging from real estate to private equity—offer unique opportunities for portfolio diversification and risk management.

Dick Pfister, CEO of AlphaCore Wealth Advisory, highlights the key categories of alternative investments and how advisors can use them to enhance client portfolios.

Key Categories of Alternative Investments

1. Real Estate

   • Includes direct property investments, real estate investment trusts (REITs), and real estate private equity funds.

   • Provides income generation and potential appreciation, with lower correlation to equity markets.

2. Private Equity & Venture Capital

   • Involves investing in private companies or startups before they go public.

   • Offers high-growth potential but requires longer investment horizons and higher risk tolerance.

3. Hedge Funds

   • Actively managed funds that use strategies like long-short investing, arbitrage, and global macro trends.

   • Aims to generate returns in various market conditions but may come with higher fees and less liquidity.

4. Commodities & Natural Resources

   • Includes gold, oil, agriculture, and other physical assets.

   • Serves as an inflation hedge and diversification tool against market volatility.

5. Structured Products & Alternative Credit

   • Covers investments like collateralized loan obligations (CLOs) and private credit.

   • Provides fixed-income alternatives with potentially higher yields.

How Advisors Can Leverage Alternative Investments

Use Technology for Accessibility: Platforms now make it easier for clients to access and track alternative investments.

Assess Client Goals & Risk Tolerance: Advisors should align alternative investment strategies with each client’s long-term financial objectives.

Educate Clients on Benefits & Risks: Transparency is key to helping clients understand how alternatives fit into their portfolios.

These insights are inspired by the latest episode of The Connected Advisor podcast featuring Dick Pfister, CEO of AlphaCore Wealth Advisory. Dive deeper into how alternative investments are transforming wealth management. Listen to the full episode here, and explore more articles in this series.