Looking Beyond Traditional Investments
Most investors are familiar with traditional asset classes such as shares, property, cash and fixed interest. Together, these investments form the foundation of many diversified portfolios.
However, an increasing number of investors are also including alternative assets as part of a well-diversified long-term investment strategy. Once largely the domain of institutional investors and very wealthy individuals, alternative investments are now more accessible to everyday investors through managed funds and exchange-traded investment vehicles.
Like any investment, alternative assets offer both opportunities and risks. Understanding how they work and the role they can play within a diversified portfolio can help investors determine whether they are appropriate for their personal financial goals.
What Are Alternative Assets?
Alternative assets are investments that sit outside the traditional asset classes of listed shares, bonds and cash. Unlike investments traded daily on public markets, many alternative assets are privately owned or derive their returns from different economic drivers.
Common examples include:
- Private equity
- Private credit
- Infrastructure
- Commodities
- Precious metals
- Agricultural assets
Many large superannuation funds, university endowment funds and institutional investors have invested in alternative assets for decades to improve portfolio diversification and potentially enhance long-term investment outcomes.
Why Investors Use Alternative Assets
Alternative investments are rarely included simply to pursue higher returns.
Instead, they are often used to improve the overall characteristics of an investment portfolio by providing broader sources of return and reducing reliance on traditional share and bond markets.
Improved Diversification
One of the greatest strengths of many alternative assets is their relatively low correlation with traditional investments.
When Australian and international share markets experience periods of weakness, some alternative investments may continue generating returns through entirely different economic drivers.
Rather than relying solely on company profits or interest rates, alternative assets may benefit from infrastructure usage, contractual cash flows, specialist lending arrangements or private business growth.
While diversification cannot eliminate investment risk, it can help reduce the impact of any single market downturn on an overall portfolio.
Potentially Smoother Returns
Many alternative investments are not traded continuously on public markets. Instead, they are generally valued periodically.
As a result, they often experience less visible short-term price volatility than listed shares.
It is important to remember, however, that lower reported volatility does not necessarily mean lower investment risk. The underlying value of the investment can still rise or fall even though it is not priced every minute during market trading.
Inflation Protection
Some alternative assets have historically performed relatively well during periods of higher inflation.
Infrastructure assets such as toll roads, airports, utilities and energy networks often generate revenue linked to inflation.
Commercial property leases may also include regular inflation-linked rental increases.
Commodities, including agricultural products, industrial metals and precious metals such as gold and silver, have also provided inflation protection during certain economic conditions, although their performance can vary considerably over shorter periods.
Additional Income Opportunities
Private credit has become increasingly popular among investors seeking reliable income. Rather than lending through traditional banks, investors provide finance directly to businesses or property developments in return for interest payments.
Private credit investments may offer higher income than government bonds or traditional fixed interest securities, although they also involve higher levels of credit risk.
Access to Different Sources of Return
Traditional investment portfolios rely heavily on company earnings growth and bond market performance.
Alternative assets provide exposure to economic activities that are generally unavailable through listed investment markets, including:
- Private businesses
- Infrastructure projects
- Renewable energy developments
- Specialist lending markets
- Agricultural enterprises
These additional sources of return can complement traditional investments and broaden portfolio diversification.
Where Alternative Assets May Be Most Useful
Alternative investments can be appropriate for a range of investment objectives depending on an investor’s circumstances, time horizon and risk profile.
Long-Term Retirement Investors
Investors with long investment horizons may benefit from allocating a carefully considered portion of their portfolio to alternative assets.
The longer investment timeframe allows investors to remain invested through periods where some alternative investments cannot easily be sold.
Income-Focused Investors
Private credit, infrastructure and selected property investments can provide relatively stable income streams. These investments may complement traditional dividend-paying shares and fixed interest securities within an income-focused portfolio.
Inflation-Conscious Investors
Real assets such as infrastructure, commercial property and commodities may help preserve purchasing power during periods of elevated inflation.
Wealth Preservation
Some alternative investment strategies focus on reducing overall portfolio volatility rather than maximising returns.
Liquid alternative strategies utilising diversified real assets and absolute return funds may help provide balance during periods of heightened market uncertainty.
Important Risks to Understand
Alternative investments are not suitable for every investor. Before investing, it is important to understand the additional risks they may involve.
Liquidity Risk
Many alternative assets cannot be bought or sold quickly.
Some investments may require investors to commit their capital for several years before it can be accessed. For this reason, alternative assets are generally most suitable for money that is not required in the short term.
Greater Complexity
Alternative investments often involve more specialised investment strategies than traditional managed funds.
Understanding how returns are generated requires additional research and, in many cases, professional financial advice.
Manager Selection Is Critical
Research consistently shows that performance differences between alternative investment managers are generally much greater than those between traditional share fund managers.
Selecting experienced managers with disciplined investment processes and strong governance is therefore particularly important.
Higher Costs
Alternative investments often involve higher management fees because they require specialist expertise, extensive due diligence and active management.
Investors should consider whether the potential benefits justify these additional costs.
Valuation Differences
Unlike listed shares, private assets are not priced continuously by financial markets.
Instead, valuations are typically undertaken periodically using independent valuation methodologies. While this can smooth reported investment returns, it does not eliminate the underlying investment risk. Valuation practices may also differ between countries and investment managers, particularly for global alternative assets.
The Bottom Line
Alternative assets are designed to complement – not replace – traditional investments.
When carefully selected, they can improve portfolio diversification, provide additional income opportunities, broaden sources of return and help protect purchasing power during periods of inflation.
However, these benefits come with additional complexity, reduced liquidity and greater reliance on investment manager skill.
For many investors, carefully selected alternative assets can strengthen a diversified long-term portfolio when combined with traditional asset classes and an investment strategy aligned with their financial goals.
Professional financial advice can help determine whether alternative investments are appropriate for your circumstances and, if so, how much exposure best suits your long-term financial plan.
The ContinuumFP Effect
Every investor’s circumstances are different.
At Continuum Financial Planners, we assess whether alternative investments are appropriate based on your financial objectives, investment timeframe, tolerance for risk and overall portfolio strategy. Where appropriate, we incorporate carefully selected alternative assets alongside traditional investments to build diversified portfolios designed to help achieve your long-term financial goals.
To arrange an appointment with one of our advisers:
- Phone our office on (07) 3421 3456, or
- Book a meeting online – you can do this at any time, selecting an available meeting time that suits you.
Explore Our Asset Class Guide Series
Learn more about the major investment asset classes:
(This article was first posted by us in July 2026.)