The ultra-rich have access to alternative investments that are usually unavailable to average investors, and they have been taking full advantage of them, writes Lyle Daly for The Motley Fool.

Among ultra-high-net-worth investors, whose net worth is at least $30 million, alternative investments make up an average of 50 percent of assets. Meanwhile, that share is just five percent for the average investor.

Investments in anything outside of the stock, bond, and currency markets are considered to be alternative investments. This is a broad term that covers everything from tangible assets and commodities trading to investments in hedge funds and digital assets.

Fred Hubler, CEO, Chief Wealth Strategist and forbes.com contributor, has worked with alternative investments since starting Creative Capital Wealth Management Group over 20 years ago.

According to Hubler, “Our focus on the investment needs of higher net worth families and they tend to have requirements that alternative investments can help address. Strategies that provide tax benefits using oil and gas programs, 1031 strategies to help them become passive owners of real estate and vetted venture capital programs to name a few.”

Some additional common examples of alternative investments include private equity, real estate, hedge funds, private credit, rare whiskey, art, coins, cars, and cryptocurrency.

Among high-net-worth families, the highest allocation is in listed equities at 31 percent, followed by private equity at 27 percent, and real estate at 11 percent.

However, it needs to be said that private equity is the only alternative investment that outperformed the S&P 500. For example, the average return in 2021 on S&P 500 was 28.7 percent, while the average return for Cambridge Associates U.S. Private Equity Index was 41.3 percent. At the same time, the average return on Barclay Hedge Fund Index was 10.2 percent.

When it comes to luxury goods, some items perform much better than others. While the value of rare whisky increased by 428 percent in the past ten years, furniture and colored diamonds have recorded a modest increase of 19 percent and 23 percent, respectively, over the same period.

Digital assets are also very popular among high-net-worth individuals, with 71 percent of them having invested in digital assets and 91 percent of high-net-worth individuals under 40 having invested in that same category.

Read more about alternative investments in The Motley Fool.

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