Improving Private Portfolios with Alternative Investments. How Small Investors can benefit from Alternative Investments

From a theoretical perspective, alternative investments should be used within every portfolio to increase diversification. The theory goes for institutional and for private investors. For small investors, however, some alternative assets are not accessible.

The goal of this study is to evaluate how alternative investments have performed compared to common assets. Some of the available alternative investment possibilities are already in use for many private investors. It is positive that investors buy assets that are not listed on their brokerage account. However, to have efficient portfolios, the asset allocation can be further optimized with respect to Markowitz¿s modern portfolio theory. The market for alternative investments is small and lacks liquidity. Therefore, the author evaluates their usefulness in terms of accessibility and availability.

The findings of this study propose that alternative investments can help to increase portfolio diversification. A portfolio comprised only of alternative investments cannot outperform a traditional one. A combination of alternative assets and traditional assets, however, can outperform the broadly used combinations of equity and debt.