{"id":510,"date":"2019-09-15T17:32:00","date_gmt":"2019-09-15T17:32:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=510"},"modified":"2026-02-25T16:06:47","modified_gmt":"2026-02-25T16:06:47","slug":"alternative-investments-vs-traditional-investments","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/alternative-investments\/alternative-investments-vs-traditional-investments\/","title":{"rendered":"Alternative Investments vs. Traditional Investments"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Introduction to Alternative Investments (2021 Level I CFA\u00ae Exam \u2013 Reading 50)\",\n  \"description\": \"This video lesson covers CFA Level 1 Alternative Investments, exploring the differences between traditional and alternative assets. It discusses hedge funds, private equity, real estate, commodities, and infrastructure investments. Key topics include diversification benefits, valuation challenges, fee structures, and the importance of due diligence when incorporating alternative assets into diversified portfolios.\",\n  \"uploadDate\": \"2020-01-02T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/mbgLBrNuD1U\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=mbgLBrNuD1U\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/mbgLBrNuD1U\",\n  \"duration\": \"PT24M25S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which of the following would you describe as a traditional investment?\",\n    \"text\": \"Which of the following would you describe as a traditional investment?\\n\\nA. The loose change in your pocket\\nB. A promise to buy GM stock at a fixed price one month from today\\nC. Starry Night by Vincent Van Gogh\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A. Traditional investments typically refer to cash, publicly-traded stocks, and publicly-available bonds, which are commonly available to investors.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/mbgLBrNuD1U?si=FSHukp7Uk1Vbu5Ez\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n<h2><strong>Traditional Investments<\/strong><\/h2>\n<p>Every possible investment choice is either an alternative or a traditional investment. Traditional investments are:<\/p>\n<ul>\n<li>long-only, publicly traded investments in stocks;<\/li>\n<li>long investments in publicly traded bonds; or<\/li>\n<li>cash.<\/li>\n<\/ul>\n<p>Traditional is not a synonym for \u201ccommon,\u201d and neither is alternative a synonym for \u201cunusual.\u201d<\/p>\n<p style=\"text-align: justify;\"><a style=\"display: block; margin: 20px 0 28px; padding: 14px 18px; border: 2px solid #2563eb; border-radius: 12px; text-align: center; color: #2563eb; text-decoration: none; font-weight: 500; font-size: 15px; background-color: #ffffff;\" href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\">Practice alternative investment questions with our free trial.<\/a><\/p>\n<h2>Alternative Investments<\/h2>\n<p>Alternative investments include assets such as:<\/p>\n<ul>\n<li>derivatives, such as options, futures or forward contracts, swap contracts, etc;<\/li>\n<li>real estate;<\/li>\n<li>short-selling stocks;<\/li>\n<li>commodities;<\/li>\n<li>fine art;<\/li>\n<li>racing horses; and<\/li>\n<li>anything outside the traditional pool of investment classes.<\/li>\n<\/ul>\n<p>Alternative investments often supplement traditional investments held in a portfolio. For example, holding a common stock and options on the same stock to protect or enhance investment returns.<\/p>\n<p><!--more--><\/p>\n<h3>A growing market<\/h3>\n<p>The growth and popularity of alternative investments proliferated in the 1990s. From hedge fund managers and institutions to high net worth individuals and retail investors, the investment community demanded new alternatives to traditional investments from brokers, banks, and investment dealers.\u00a0 The market responded with an increased supply and complexity of investment options.<\/p>\n<p>Alternative investments typically have one or more of the following characteristics:<\/p>\n<ul>\n<li>illiquidity;<\/li>\n<li>narrow expectations from managers;<\/li>\n<li>a low correlation of returns with traditional investments;<\/li>\n<li>lax regulation;<\/li>\n<li>lower transparency;<\/li>\n<li>limited historical data;<\/li>\n<li>unique tax treatment; and<\/li>\n<li>special legal considerations.<\/li>\n<\/ul>\n<p>Price discovery is often much more difficult for these alternatives than traditional investments such as stocks and bonds traded in the open market.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which of the following would you describe as a traditional investment?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">\u00a0The loose change in your pocket<\/li>\n<li data-tadv-p=\"keep\">\u00a0A promise to buy GM stock at a fixed price one month from today<\/li>\n<li data-tadv-p=\"keep\">\u00a0Starry Night by Vincent Van Gogh<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is A.<\/p>\n<p>Only cash, publicly-traded stocks, and publicly-available bonds are available to investors in traditional investments.<\/p>\n<\/blockquote>\n<p><em>Reading 50 LOS 50a:<\/em><\/p>\n<p><em>compare alternative investments with traditional investments<\/em><\/p>\n<div class=\"notes_inv\"><hr \/>\n<p><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/alternative-investments\/learning-sessions-curriculum-alternative-investments\/\"><em>Alternative Investments &#8211; Learning Sessions<\/em><\/a><\/p>\n<\/div>\n\n\n<div style=\"text-align:center; margin:42px 0 10px;\">\n\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\"\n     target=\"_blank\"\n     rel=\"noopener noreferrer\"\n     style=\"\n        display:inline-block;\n        padding:16px 36px;\n        background-color:#3f78d7;\n        color:#ffffff;\n        text-decoration:none;\n        font-weight:600;\n        font-size:18px;\n        border-radius:40px;\n        line-height:1.1;\n     \">\n     Start Free Trial\n  <\/a>\n\n  <p style=\"\n        margin-top:16px;\n        max-width:680px;\n        margin-left:auto;\n        margin-right:auto;\n        font-size:16px;\n        line-height:1.5;\n     \">\n     Solve CFA-style alternative investment questions and master diversification differences.\n  <\/p>\n\n<\/div>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Traditional Investments Every possible investment choice is either an alternative or a traditional investment. Traditional investments are: long-only, publicly traded investments in stocks; long investments in publicly traded bonds; or cash. Traditional is not a synonym for \u201ccommon,\u201d and neither&#8230;<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[11],"tags":[],"class_list":["post-510","post","type-post","status-publish","format-standard","hentry","category-alternative-investments","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Alternative vs. Traditional Investments | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Compare alternative and traditional investments, including key asset classes, risk factors, and portfolio diversification benefits.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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