What is an alternative investment?

An alternative investment is anything that is not a plain listed security, such as shares, index funds, exchange traded funds or term deposits. It includes property, precious metals, collectables, private company stakes, peer to peer lending and crypto assets. The label on its own says nothing about quality or safety.

Are alternative investments riskier than index funds?

As a group, alternatives tend to be less liquid, harder to value and less transparent than a low fee index fund, and they often carry higher fees. That does not make every alternative risky, but it means you need a stronger reason to choose one, not a weaker one.

When should I consider an alternative investment?

Only when you already have a solid base of an emergency fund and sensible index fund holdings, when you understand the specific asset well, and when you can afford to hold it illiquid for years. If you might need the money back soon, it is the wrong choice.

Is crypto an alternative investment?

Crypto assets are usually described as alternatives because they are not listed securities in the traditional sense and are often lightly regulated. They are speculative, hard to value and volatile, so they should only ever be a small part of a wider, already solid portfolio, and never money you cannot afford to lose.

Alternative investments in NZ: what counts and when they make sense

The phrase alternative investments gets thrown around a lot, and it usually sounds more exciting than the reality. In New Zealand it is a loose label covering anything that is not a plain listed security, and it can mean anything from a block of flats to a rare coin to a token traded on a foreign exchange. This guide cuts through the label, shows what the real risks are, and helps you decide when these things are worth considering at all.

What actually counts as an alternative investment

The line is simpler than people think. A traditional investment is something you can buy and sell on an open market in small units with a published price, like shares, index funds, exchange traded funds and term deposits. An alternative is essentially anything that is not that.

Physical assets. Residential and commercial property, precious metals, art, collectables and other things you can touch.
Private markets. Stakes in companies that never list on an exchange, private equity, venture capital and similar funds.
Peer to peer and private lending. Lending money to borrowers or businesses outside the big banks.
Newer asset classes. Crypto assets and other tokens that may be only lightly regulated.
Specialist strategies. Hedge funds, commodities and other approaches that do not behave like a standard fund.

The label tells you almost nothing about quality or safety. A tired commercial building and a crypto token are both alternatives and share a few traits, but they are nothing alike in practice. Ignore the label and look at what each one actually is.

The two rules that explain most of the risk

Plenty of alternative strategies are perfectly legitimate and can work well. But as a group, alternatives tend to carry two consistent features that explain most of the risk, and it helps to name them plainly.

They are illiquid

Liquidity means how quickly you can turn an asset into cash at a fair price. A listed index fund you can sell on any business day and be paid in a sensible time. An unlisted company, a piece of property or a collectable, you cannot. Selling can take months, often only at a price below what you hoped. If you might need the money back in a hurry, this is the wrong place for it.

They are hard to value

When there is no public market, the value is whatever a buyer will pay. That creates wide gaps between what sellers ask and what buyers offer, plus valuations that look healthy on paper but cannot be turned into cash. In a thin market, your own sale can push the price against you.

When alternatives make sense

For most people, alternatives are entirely optional. The plain, diversified, low fee listed market does the heavy lifting, and it remains the sensible starting point. An alternative earns its place when three things are true at once:

You already have a solid base. An emergency fund, sensible index fund holdings and money you genuinely will not need for years.
You understand the specific asset. Not just the idea of a good return, but the thing itself and how it behaves.
You can afford to hold it illiquid. For a long stretch, without being forced to sell at a bad time.

That is the honest bar. If any of those is missing, the alternative is probably not the right next move, no matter how it is pitched.

Practical checks before anything alternative

What is the exit? When and through what channel can you sell, how long does it take, and what does selling cost?
How is it regulated? Which body watches over it, and what happens to you if the provider or manager fails?
What are the fees? Private markets often carry far higher and less visible fees than listed funds.
What are you actually being offered? Urgency, secrecy or guaranteed returns are warning signs, not reasons to invest.

None of this is meant to scare you off. Some people make a good living from alternatives and genuinely enjoy owning them. The point is simply to go in with your eyes open, size any holding sensibly relative to the rest of your money, and understand the exit before you buy, not after.

The point

The alternative label is a warning light, not a shortcut to higher returns. Ask whether you can afford to hold something illiquid, whether you understand it, and whether you already have a boring, solid base underneath. Answer those honestly and you will rarely go far wrong.