An alternative asset is a newer type of asset

Asset

In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...

 that has not been traditionally considered part of an investment portfolio. Historically, examples include real estate

Real estate

In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...

, commodities, as well as rare coins

Coin collecting

Coin collecting is the collecting or trading of coins or other forms of minted legal tender.Coins of interest to collectors often include those that circulated for only a brief time, coins with mint errors and especially beautiful or historically significant pieces. Coin collecting can be...

 and stamps

Stamp collecting

Stamp collecting is the collecting of postage stamps and related objects. It is one of the world's most popular hobbies, with the number of collectors in the United States alone estimated to be over 20 million.- Collecting :...

, artwork or trading cards. More recently, the term has also come to be used to refer to other institutional asset classes including private equity

Private equity

Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....

, venture capital

Venture capital

Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...

, trading strategy indices, and hedge funds. Due to the nature of these assets, an accurate valuation is sometimes difficult to accomplish.

Liquidity

Alternative assets are generally viewed as less liquid than regular assets. For example, most artwork, sports cards, and stamps gain the majority of their value over a long period of time. Other alternative assets, such as investments in infrastructure-related projects, may take decades to gain significant value. Therefore, investors considering alternative assets are generally investing far into the future.

Advantages

The main advantage of alternative assets is that they help diversify

Diversification (finance)

In finance, diversification means reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk of its constituent assets, and often less risk than the least risky of...

an investor's portfolio. Since they are non-traditional investments, they do not tend to move in the direction of the stock market and may, therefore, help a portfolio sustain market volatility. Also, due to lower liquidity, alternative assets are often mispriced and so offer opportunities for arbitrage.

Disadvantages

Due to its non-traditional nature, alternative assets are more difficult to add to a portfolio. Therefore, banks may charge an additional fee for holding the asset. Furthermore, depending on the returns realized from the asset, additional tax forms may have to be filed. Its lack of liquidity is also seen as a major disadvantage since liquidating, as well as properly valuing, the asset may take some time.