What Are “Alternative Investments”… and Why Are More Retirees Using Them?

If you’ve been following the investing world lately, you may have noticed a lot more conversation around alternative investments. Once reserved for large institutions, alternatives are now becoming a regular part of well-diversified portfolios for retirees and high-net-worth families.

It’s not hard to see why. The global alternatives market is projected to grow from $15 trillion in 2022 to over $24 trillion by 2028, a 60% jump in just six years! As investors look for ways to balance growth with stability, alternatives are emerging as a valuable complement to traditional stocks and bonds. So what’s behind the rise of alternatives?

In short, investors are looking for ways to diversify, reduce volatility, and generate steady income in an environment where traditional markets can swing widely. Let’s unpack what “alts” really are, how they’re used, and how they might fit into your broader strategy at Insight Planning.

What Are Alternative Investments?

“Alternative investments” simply refers to anything outside of traditional public stocks and bonds. Instead of owning shares in a company that trades daily on the stock market, investors in alternatives might own physical assets, lend capital privately, or invest in long-term income-generating projects. Because these investments often behave differently from public markets, they can help smooth out returns and strengthen your portfolio’s resilience.

The Five Main Types of Alternative Investments

While “alternative investments” cover a broad range, most fall into five key categories, each with its own role and opportunity set:

1. Real Estate – Investments in apartment buildings or commercial properties provide rental income and potential long-term growth.
    Example: A private real estate fund that distributes monthly rental income.
   
   
2. Private Credit – Also known as private lending, this involves providing loans directly to businesses outside the stock market in exchange for interest.
    Example: A fund that lends to mid-sized Canadian firms at fixed rates, delivering steady, predictable income.
    Private credit has become the fastest-growing segment of the alternative investment world, serving as a reliable income source for investors seeking consistency.
   
   
3. Private Equity – Ownership in private companies before they go public or are acquired. While it can offer access to early-stage growth, returns in this space have become inconsistent. In our view, the risk is often uncompensated, making private equity less suitable for retirement-focused portfolios.
   Example: A private equity fund that acquires and grows mid-market technology firms before selling or taking them public.
   
   
4. Infrastructure – Assets such as roads, bridges, utilities, and renewable energy projects provide essential services and often generate stable, inflation-linked cash flows.
    Example: A renewable-energy fund that owns solar farms and pays quarterly income from long-term contracts.
   
   
5. Commodities – Tangible assets like gold, oil, farmland, or other natural resources that can hedge against inflation and market volatility.
    Example: A fund investing in farmland or precious metals to preserve value during periods of rising prices.
   

The Two Main Roles of Alternatives

In our view, alternatives can serve two main purposes in investment portfolios:

1. Diversification and Stability – Because many alternatives move differently from stocks and bonds, they can help smooth overall performance and reduce the impact of market swings.
   
2. Income and Inflation Protection – Many alternatives, especially private credit, real estate, and infrastructure, are designed to generate steady cash flow while preserving purchasing power when inflation rises.

How Much Should You Allocate?

Alternatives work best as a complement, not a replacement, for traditional investments. Most investors dedicate 10% to 20% of their portfolio to alternatives, depending on their goals and time horizon. Retirees often focus on income-producing options like private credit or real estate, while longer-term investors may add a small growth-oriented allocation like private equity or infrastructure.

Think of alternatives as a supporting role, a way to strengthen your portfolio’s foundation without tying up all your capital.

Important Considerations

While alternatives undoubtedly have their benefits, It’s also worth remembering that with alternatives, there’s always a trade-off. There’s a common trope in our industry that goes something like this: When it comes to alternatives, you can usually have two out of three: strong returns, lower risk, or low fees, but rarely all three at once.

If you want higher, lower-risk returns, the trade-off is often higher fees to access specialized managers. Conversely, If you want stable income-generating returns at low costs, you’re probably making a more modest return.

The key is knowing which trade-off makes sense for your goals. Our role at Insight Planning is to help you strike that balance, identifying when the potential benefits of alternatives justify the costs and complexity, and when they don’t.

Bringing It All Together: The Insight Planning Approach

At Insight Planning, we view alternative investments as one of many tools in our broader financial planning toolkit. Our approach begins with your goals, your need for income, your tolerance for risk, and your vision for retirement. From there, we design a balanced strategy that combines traditional investments with select alternatives that align with your long-term objectives.

Alternatives aren’t about chasing trends; they’re about building stability, protecting purchasing power, and creating reliable income in a world that doesn’t always move in a straight line. If you’re curious how alternatives could fit within your personalized plan, our team would be happy to walk you through the options and show how they can work together as part of a thoughtful, evidence-based strategy.

Disclaimer:
This content is for informational purposes only and should not be considered legal or tax advice. While we help clients navigate the financial aspects of gifting strategies, we do not provide legal or tax services. We recommend working with a qualified legal or tax professional to assess how any gifting strategy aligns with your personal circumstances. We’re happy to collaborate with your external advisors to ensure all aspects of your plan are carefully considered.