Alternative investments outside of conventional stocks and bonds can provide valuable wealth building opportunities, especially for Accredited Investors.

Common alternative investments include private equity, venture capital, hedge funds, art and other collectibles, and more. If you’re looking for a way to diversify your portfolio, hedge against inflation, or earn higher returns on your investments with assets that aren’t correlated to the stock market, then these asset classes may be a strong option for you. 

In this article, you’ll receive an overview of the benefits of alternative investments, and we’ll also highlight one strategic investment that can help you pay less taxes on your W-2 income while receiving consistent returns. 

3 Reasons to Invest in Alternative Assets

Alternative assets are not all created equally, and it’s important to evaluate each investment on its own terms to see if it fits with your goals and expectations. That said, here are a few common benefits of investing in assets besides stocks and bonds.

1. Diversification can decrease your risk during stock market downturns

If all of your investments are tied to stocks and bonds, you’ll be more heavily impacted by market crashes and downturns. Many alternative assets are not closely correlated with the stock and bond markets, so investing in them can help you diversify your portfolio and protect yourself during the inevitable ebbs and flows of the stock market.

2. Alternative assets can serve as inflation hedges

Certain alternative assets, especially hard assets like real estate and commodities, are effective tools for protecting your portfolio against inflation. These assets are likely to keep or increase their value in the midst of inflation, unlike cash and most stocks.

3. Alternative assets may deliver higher returns

Though each investment is different, the right alternative investments will often yield higher returns than most stocks and bonds. 

Reduce Your Taxes with Strategic Alternative Investments

Most investors know that the right investments can help them build generational wealth, but unless you’re also focused on building a tax-efficient strategy, you’ll end up giving more and more money to the government the more you earn. 

It’s time to start investing like the ultra-wealthy and looking for those investments that can produce consistent cash flow and are able to reduce your taxable liability, including your active (W-2) income.

Alternative real assets provide passive income and tax benefits. Because these assets have passive income, the losses that are associated with the investments are passive losses. Barring a couple of special exceptions, active and passive income/losses don’t mix. 

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