Alternative vs traditional assets: Where do they fit?

Equities, bonds and cash have long formed the backbone of most investment portfolios. They are familiar, transparent and well understood. Yet in recent years, interest in alternative investments has grown steadily.

With more choice comes more complexity. Alternatives are often spoken about as a solution to market volatility or as a way to ‘future-proof’ portfolios, but they are not a silver bullet. Understanding where alternative assets may add value – and where they may not – is key to using them effectively.

Defining the landscape

Traditional assets typically include listed equities, fixed income and cash. These assets are widely traded, relatively liquid and form the foundation of most diversified portfolios. Over long periods, they have been reliable drivers of growth, income and capital preservation when combined thoughtfully. Alternative investments, by contrast, sit outside these conventional categories. They can include private equity, private credit, infrastructure, property strategies, absolute return funds and other unlisted or less traditional assets. What they have in common is that their return drivers often differ from listed markets and they may behave differently across market cycles.

Interest in alternatives has increased as markets have become more complex and valuations in some listed asset classes have appeared stretched at times. Investors are increasingly asking whether alternatives can help diversify portfolios or provide more stable sources of return.

Why investors consider alternatives

One of the primary reasons investors look to alternatives is diversification. Because many alternative assets are not priced daily or are less directly linked to equity market movements, they may help smooth portfolio volatility over time.

Certain alternatives also offer different sources of income. Infrastructure and private credit, for example, can provide regular cash flows that may be attractive for investors seeking income, particularly in retirement. Some strategies may also offer partial inflation protection, depending on how revenues are structured.

We’re also seeing increased interest in alternatives from investors who want exposure to opportunities not available through listed markets. Private assets can provide access to businesses, projects or assets that remain unlisted for much longer, or indefinitely.

Where alternatives can add value – and where they don’t

Alternatives can play a useful role in portfolios when they are used to complement traditional assets rather than replace them. In some cases, they may improve portfolio resilience by reducing reliance on a single source of return or market outcome.

However, alternatives are not suitable for every investor or every portfolio. Many come with lower liquidity, meaning capital may be tied up for extended periods. This can be appropriate for investors with longer time horizons and sufficient liquid assets elsewhere, but it can be limiting for those who may need access to funds at short notice.

Complexity is another consideration. Alternative strategies can be harder to understand, less transparent and more difficult to value than listed investments. This makes due diligence, manager selection and ongoing monitoring particularly important.

Importantly, alternatives do not guarantee better returns. In periods where public markets perform strongly, private or alternative assets may lag, especially after fees. The role they play should always be assessed in the context of overall portfolio objectives rather than recent performance.

Risk, access and implementation considerations

Illiquidity is one of the most significant risks associated with many alternative investments. Lock-up periods, redemption restrictions and longer investment horizons require careful planning and clear expectations.

Fee structures also tend to be higher and more complex than those associated with traditional assets. Understanding how fees impact net returns is critical, particularly when comparing alternatives to listed investments offering similar return potential.

Access can vary widely. Some alternatives are only available to sophisticated or wholesale investors, while others are offered through structures designed to improve accessibility. Regardless of structure, the underlying risks remain and need to be assessed carefully.

At Apt, alternatives are evaluated through the same disciplined, evidence-based lens applied to all asset classes. This includes assessing risk-adjusted returns, alignment with portfolio objectives and how each investment fits within the broader strategy.

Portfolio construction is about balance

Alternative assets work best when they are integrated thoughtfully into a diversified portfolio. They may enhance diversification, provide additional income streams or help manage specific risks, but they are rarely a standalone solution.

Position sizing matters. Even when alternatives are appropriate, allocations should be measured and aligned with an investor’s goals, time horizon and tolerance for illiquidity. Expectations also need to be realistic – alternatives are not designed to eliminate risk or deliver consistent outperformance.

Discipline over fashion

Market narratives can be powerful, particularly during periods of uncertainty or rapid change. However, allocation decisions driven by trends or fear often lead to suboptimal outcomes.

A disciplined investment approach focuses on long-term goals, diversification and risk management rather than chasing what is currently popular. Alternatives should earn their place in a portfolio through careful analysis, not headlines.

By maintaining an evidence-based framework, Apt aims to ensure every investment decision supports clients’ broader objectives and helps them remain focused on what matters most over time.

Considering whether alternatives are right for you

Alternative investments can play a valuable role for some investors, but they are not universally appropriate. The key is understanding how they fit within your overall strategy, and whether the trade-offs involved align with your personal circumstances.

If you’re considering alternatives, or simply want to better understand how they may fit alongside traditional assets, get in touch with an Apt advisor. We can help you clarify whether alternatives have a role in your portfolio and how they should be assessed as part of a balanced, long-term plan.

General Advice Warning

The information provided in this blog does not constitute financial product advice or a recommendation to purchase a particular product. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners Pty Ltd is not a registered Tax Agent. You should consider your individual situation and seek tax advice from a registered tax agent before making any decision based on the content of this document. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.