Education
Alternative investing: asset classes and strategies
Dive into how different alternative investments work and where they might fit in a portfolio.
Most investors are familiar with stocks and bonds. Alternative investments expand that universe considerably with asset classes like private equity, venture capital, real estate, private credit, and pre-IPO investing.
Each asset class works differently, creates value differently, and carries its own risk and return profile. Understanding these differences helps investors evaluate opportunities more clearly and explore alternatives with greater confidence.
How asset classes differ and why it matters
Before allocating to any alternative investment, it helps to understand a few characteristics that vary significantly across asset classes: how value is created, how long capital may be tied up and what risks are involved.
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Different strategies create value in different ways
Some alternatives generate value through business growth, while others create returns through fixed income, operational improvements or market inefficiencies. Each asset class comes with a different set of considerations and strategies for access based on an investor’s risk tolerance, needs and goals.
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Liquidity and time horizons vary widely
While some strategies distribute income regularly, others require longer holding periods before value is realized. Alternatives generally have investment periods ranging from 3–10+ years. It’s important for investors to account for these timelines in liquidity planning.
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Risk factors differ across categories
Each asset class carries its own mix of market, operational and structural risks that investors should understand before allocating capital. Alternatives carry a different mix of risks than traditional equities, and they may also come with unique characteristics like eligibility criteria and investment minimums that are not a fit for all investors.
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Alternative investments generally fall into several broad categories. Each includes multiple strategies and structures with unique return profiles and portfolio roles.
Private equity
Investments in privately held companies across different stages of development, from growth stage to pre-IPO.
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Venture capital
Funding early-stage startups with high growth potential to power key initiatives like product development, hiring or company expansion.
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Angel investors
Early-stage investing in startups, often before institutional capital enters, with the potential for significant upside if the company grows.
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Pre-IPO
Investing in companies ahead of a public offering, typically at a later stage of private market development than venture capital.
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Private credit
Direct lending to companies that provide income through interest payments.
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How to compare alternative investment strategies
Growth vs. income
Some strategies aim primarily for long-term capital appreciation, while others prioritize recurring cash flow.
Early-stage vs. mature businesses
Investments may support emerging companies with high upside potential or established businesses with steadier performance.
Asset-backed vs. operating companies
Certain alternatives are backed by tangible assets like property or infrastructure, while others rely on the performance of operating businesses.
Shorter vs. longer hold periods
Investment timelines can range from several years to over a decade depending on the strategy.
From limited access to broader investment opportunity
Access to alternative investments has historically been limited to institutional investors. Today, self-directed IRAs are expanding access—giving more investors the ability to diversify beyond traditional markets.
Past
Locked
Limited access to alternative investments
Mostly restricted to institutional capital
Public markets were the primary option
Present
Unlock
More investors accessing alternatives via SDIRAs
Greater flexibility in retirement allocations
Expanding exposure beyond stocks and bonds
Future
Expansion
Access to a wider range of asset classes
Stronger diversification across portfolios
Better alignment with long-term goals
How self-directed IRAs unlock access to alternative asset classes
Self-directed IRAs give investors a way to hold alternatives like private equity, venture capital, and real estate within a tax-advantaged retirement account. Learn how they work, what you can invest in, and which IRA type fits your goals.
