Alternative investments in Canada have exploded in popularity over the last decade. From private equity and private credit, to real estate funds, hedge-style ETFs, commodities, and even crypto, investors are constantly being told that they need “something different” in their portfolio. The promises made to potential investors is the same: Greater diversification, higher returns, smoother performance, and better access to opportunities outside the stock market.
But what are alternative investments really? And more importantly, do they actually make sense for Canadian DIY investors?
In this guide, I’ll break down exactly what alternative investments are, how they differ from traditional investments like stocks and bonds, the most common alternative investment strategies in Canada, the pros and cons, and how you can actually invest in them if you decide to go down that road.
I’ll also explain why I’m personally skeptical of much of the hype – and what to watch out for before you commit your hard-earned dollars to an investment that might now allow you to take money out when you need it.
What is an Alternative Investment?
The simplest way I found to describe an alternative investment is: Investments that fall outside of common publicly traded assets such as stocks, bonds, and cash equivalents.
Notice what’s missing from that definition. There’s nothing about being more sophisticated or outperforming.
So why has interest in alternative investments exploded over the last decade? Two main reasons (and both are basically marketing angles).
1) Traditional portfolios became “boring.” Low + falling interest rates crushed bond yields for years. Stock valuations went up. Investors started asking the same question over and over: What else is there?
2) The investment industry needed a new story. When everyone owns ETFs and fee pressure is relentless, calling something “alternative” is an easy way to make it sound differentiated and exotic. Different (*higher*) fee structure. Different wrapper. Different sales pitch.
That doesn’t mean alternative investments are bad, but it does mean the word itself doesn’t tell you much. It mostly signals the structure of an investment, not the future returns – or really anything useful.
Alternative investments are usually designed for specific constraints and tradeoffs, not for universal appeal. Many are built for institutional investors, pension funds, endowments, or very high-net-worth families. When they get repackaged for retail investors, it’s not often a great deal for the individual.
Alternative Investments vs Traditional Investments
Traditional investments, whether we’re talking about Canadian dividend stocks, Canadian ETFs, or even Canadian mutual funds, have all been defined as traditional investments.
These “traditional investments” share a few common traits. They’re publicly priced. They’re generally liquid. And information about them is widely available. In short, they’re pretty easy to learn about, then buy and sell using one of our recommended online brokers.
Alternative investments as a group are categorized more by how they’re structured as opposed to what they’re actually invested in. Here’s a framework that actually helps.
Public vs Private: Traditional investments are traded on public markets. Prices update constantly (that’s what those red/green ticker symbols are on news channels). Alternative investments are often private. That means fewer buyers and sellers, negotiated pricing, and valuations that update infrequently. There is much less day-to-day transparency as a result.
Liquid vs Illiquid: You can sell a stock ETF in seconds. You can sell a mutual fund at the end of the day with a click, phone call, or email. Many alternative investments can only be sold monthly, quarterly, yearly, or not at all until a lock-up period ends. Illiquidity isn’t inherently bad, but it is a real cost. You give up flexibility in exchange for a hoped-for benefit. Some experts actually like the “lock-in” effect of illiquidity in that it can protect investors from themselves and their behavioral tendencies.
Transparent vs Opaque: Public markets are messy, but they’re visible. Financial statements, analyst coverage, and quarterly regulatory filings all serve to put a pretty big spotlight on most asset values. Alternative investments often operate with far less disclosure. That can reduce short-term volatility. It can also hide problems until it’s too late and you get trapped in a big drawdown.
A private real estate fund isn’t “alternative” because buildings are exotic. It falls into the alternative basket because pricing is infrequent, capital is locked up, and information flows differently. A liquid alternative ETF isn’t truly private at all. It just uses non-traditional strategies inside a public wrapper.
The useful takeaway here is simple. Alternative describes structure and access, not intelligence or sophistication. Whether an alternative investment makes sense depends entirely on what tradeoffs you’re making, and whether those tradeoffs actually improve your portfolio given your goals.
Personally, I have to admit that I’m pretty skeptical of the whole thing!
Alternative Investments Strategies List
When Canadians hear “alternative investments,” they usually aren’t thinking about complex arbitrage strategies or institutional portfolio theory. Statistically speaking, they’re much more likely to be thinking about things their neighbour mentioned (or something they saw pitched in a webinar).
The other common place they’d hear about this stuff is when an advisor (definitely not one on our Best Financial Planners in Canada list) their advisor suggested to “diversify.” Once again, the key thing to remember here is that it is NOT the underlying asset itself that is “alternative” – but rather the structure and rules around how one might invest in it.
Real Estate vs REITs: Real estate is the most familiar alternative investment for Canadians. Direct ownership – rental properties, commercial buildings, farmland – is alternative primarily because it’s privately valued and illiquid. You can’t instantly exit as pricing doesn’t update daily.
Publicly-traded Canadian REITs are a different story. They trade like stocks, offer daily liquidity, and provide transparent pricing. Structurally, they behave much more like traditional investments. Then we have private real estate funds with redemption restrictions. While these are more diversified than your direct ownership of a few rental properties model, they are not publicly-traded, so they are classified as alternatives.
Note: “Redemption Restrictions” is a phrase you’re going to see associated a lot with alternative investments. It refers to the limits on when and how you can withdraw your money from an investment fund. If you’re money is invested in REITs or ETFs for example, you can sell all of your units at any time and take all of your money out. That isn’t so with private alternative investments in most cases.
Mortgage Investment Corporations (MICs): MICs pool investor capital and lend it out as mortgages, distributing the income generated from those loans. They’re popular in Canada, especially among income-focused investors looking for something beyond bond funds.
Many MICs have limited redemption windows and valuations that don’t fluctuate daily. That stability can look comforting and encourage good behaviour, but if you want all your cash tomorrow you’re out of luck. Also, it should be noted that risk can be difficult to price when the market is illiquid like this. Canadians usually pay their mortgages off – but we used to say that about Americans too before 2008.
Private Equity and Venture Capital: Private equity invests in companies that aren’t publicly traded. Venture capital focuses on earlier-stage businesses with higher growth potential (and correspondingly higher failure rates). There is a lot of overlap between these two alternative strategies, and the basic idea is the same – buy businesses that aren’t publicly traded.
Private equity is a bit of a broader term that might also include something like buying out all of the veterinary clinics or pharmacies in a region and then using economies of scale and monopoly pricing power to raise profit margins. A lot of times investors will need a large initial amount of money to even begin investing through these channels (unless they buy an alternative investments mutual fund).
Private Credit and Lending Funds: Private credit funds lend directly to businesses or projects outside traditional banking systems. Investors receive income generated from those loans. Essentially you’re acting as a bank.
These funds are typically illiquid, privately valued, and dependent on underwriting quality. Income streams can appear smooth because pricing doesn’t update daily. That doesn’t mean the underlying risk is low. It just means volatility may be hidden. Many folks are tempted by the higher yield in these projects relative to what they can get in a low risk investment such as a basic bond ETF or GIC. Of course, there is a reason those interest rates are higher – they come with a higher risk of default.
Commodities and Metals: The commodities category can include gold (and other precious metals), oil, agricultural products, and industrial metals. Real assets often include infrastructure, farm land, timberland, and similar tangible holdings.
These are considered alternative because they don’t generate earnings or coupons in the traditional sense of a stock market investment. Their returns are often driven by supply-demand dynamics and inflation cycles. Diversification is the commonly-cited reason to get in on these. That said, with some many different ETFs and mutual funds out there that invest in these asset classes, it’s pretty easy to get exposure through traditional channels.
Collectibles, Crypto, and Other Fringe Alternatives: Art, wine, classic cars, rare coins, and crypto assets sit on the outer edge of the alternative spectrum.
Some would argue that crypto belongs on its own list, but boy does it seem pretty “fringey” right now. Anyone reading MDJ for a while will know that I’m not a big crypto guy, and see no reason to get started today. More and more it looks like very limited use cases exist, and it’s a simple matter of “number go up.” (Or not.)
Collectibles like baseball cars and rare art illiquid, hard to value, and heavily influenced by sentiment. Some investors allocate small amounts for diversification (some could argue buying stuff rich people want is a good idea in an increasingly-unequal world) or personal interest. Others treat them more like hobbies. They are clearly outside traditional capital markets.
Strategy-Based Alternative Investments
Up until now we’ve focused on asset categories when it comes to building a mental map of the world of alternative investing. But there’s another way to think about alternatives – not by what they own – but by how they try to make money.
Long/Short Investing Strategies: Long/short investing means buying securities expected to rise in value (“long”) while simultaneously betting against securities expected to fall (“short”). The goal isn’t necessarily to beat the market in a roaring bull run. It’s often to reduce overall volatility while still generating positive returns.
In theory, this can smooth out performance. In practice, success depends heavily on manager skill. Shorting introduces additional risks and costs, and poorly timed trades can amplify losses rather than reduce them. These strategies are often packaged in hedge funds or liquid alternative mutual funds available to retail investors. I personally don’t touch these, and I think the vast majority of investors have an inflated sense of their own ability to manage short investment strategies.
Managed Futures: Managed futures strategies typically trade futures contracts across commodities, currencies, interest rates, and equity indexes. Many use trend-following models, meaning they try to ride sustained price movements up or down.
These strategies often attract attention because they sometimes perform well during periods of market stress. That said, they can lag badly during stable bull markets. Returns are driven by momentum and trend persistence, not by underlying earnings growth like traditional stocks. Again, I put this here only for informational purposes. You can check out our piece on options trading in Canada for more info.
Arbitrage and Event-Driven Strategies: Arbitrage strategies attempt to profit from pricing discrepancies – for example, between a company’s current stock price and the price offered in a takeover bid. Event-driven strategies usually focus on corporate actions such as mergers, restructurings, or bankruptcies.
The theory is that these situations offer mispricings. The reality is that they require deep expertise (often insider trading tips frankly) and quick execution. Margins can be thin, and competition from institutional investors is intense.
Benefits or Pros of Alternative Investments
At the end of the day, investors usually buy alternative investments because they believe in the following benefits:
Diversification and low correlation: Alternatives are often pitched as moving differently than stocks and bonds. If one part of your portfolio struggles, another should hold up. That’s the theory anyway. In calm markets, some strategies do behave differently. In full-blown panic mode, correlations often rise and diversification benefits can shrink fast.
Potential volatility reduction: Some alternatives aim to reduce the ups and downs of a portfolio. Private assets may look smoother simply because they aren’t priced daily. That can feel comforting. Think about how few people buy or sell their house because it goes up or down in value – that’s a marked improvement from how most people act with stocks right? Just remember, as I said earlier, fewer price updates doesn’t automatically mean lower risk.
Inflation protection: Real assets like infrastructure, real estate, or commodities are often marketed as inflation hedges. In certain environments, that can be true. In others, performance depends more on demand cycles and financing conditions than on inflation alone.
Income generation: Private credit, MICs, and certain real estate vehicles attract investors looking for higher yields than GICs or bond ETFs provide. Higher monthly yield can be appealing, but higher yields almost always reflect a tradeoff for higher credit risk, lower liquidity, or both.
Drawbacks or Cons of Alternative Investments
Alternative investments seem to be getting a lot of buzz over the last few years. While it’s true that in the past, there were some positive cases of outsized returns and lowered volatility (usually experienced by massive funds like university endowments) that’s not at all guaranteed to continue. Here are a few of the risks of alternative investing:
Illiquidity and lock-up periods: Many alternatives restrict when you can withdraw your money. You might only be able to redeem quarterly, annually, or after a multi-year lock-up. That’s manageable when everything is going well. It feels very different if you need capital quickly, or if market conditions deteriorate and everyone wants out at the same time.
Liquidity is valuable precisely when it disappears. Giving it up should be an intentional decision, not an afterthought.
Complexity and lack of transparency: Big companies like those on our list of best Canadian dividend stocks and Canada’s best ETFs may be volatile, but information about them is widely available. Many alternative investments operate with far less disclosure. Pricing may rely on internal models. Holdings may not be updated frequently. Strategy details can be opaque.
Complexity doesn’t automatically mean smarter. It often just means harder to evaluate.
Higher fees and layered costs: Alternatives frequently involve multiple layers of compensation. Management fees. Performance fees. Administrative fees. Sometimes fees at both the fund level and the underlying investment level. Even if gross returns look attractive, net results after fees can tell a different story. Fee drag compounds just like returns do – just in the opposite direction.
Valuation uncertainty: When an asset isn’t priced daily in a public market, someone has to estimate its value. That can smooth returns. It can also delay the recognition of losses. A private fund showing steady returns doesn’t necessarily mean the underlying assets are immune to downturns. It may simply mean the repricing hasn’t happened yet. This might actually be my single biggest worry for the markets in 2026.
There’s also the tendency to assume that “sophisticated” equals safer or a better overall risk/reward outlook. That’s just not true, and in many cases I’d argue there is a negative correlation!
How to Invest in Alternative Investments as a Canadian
Given how wide the category of “alternative investments” actually is (it can describe anything from Uranium to Bitcoin to farm land to hockey cards) there is an almost infinite number of ways to get portfolio exposure. I’m just going to quickly list the most popular alternative investment funds and general ways to get into the space.
ETFs and mutual funds: This is the cleanest way to get alternative exposure for most DIY investors. You’re using your existing Canadian online brokerage and buying a fund that happens to use an alternative strategy (or holds alternative-ish assets).
Closed-end alternative funds: Closed-end funds trade on an exchange like an ETF, but they don’t behave like an ETF because the price is set by buyers and sellers – not automatically kept close to the value of the underlying holdings.
Private alternative funds and pooled vehicles: This is where alternative investments start to feel truly “alternative” – because the buying process is different, the documents are different, and the investor protections are different.
Canadians don’t buy private funds through a discount brokerage. They invest through a registered dealer that can sell exempt market products (or through a Canadian wealth management company that has access). Usually you need to be an accredited investor to get access to these opportunities. Prospective investors should really do their homework on these opportunities and look at redemption restrictions, dealer registration, fees, gated withdrawals, and how valuations are determined at any given time.
Direct ownership: This is the old-school alternative route, you simply buy the asset directly. Investments such as rental properties, private businesses, land, an art or baseball card collection. You’re buying hard assets and taking the risks that come with that.
Alternative Investments in Canada FAQ
Best Alternative Investments for 2026
If you’ve read this far, you already know I’m not going to hand you a hot list of “must-own” alternative investment strategies.
The right way to think about alternatives in 2026 (or any other year) isn’t “What’s trendy?”
It’s “Where might alternative investments actually serve a purpose – and where is enthusiasm outrunning logic?”
Here are the areas getting the most attention in 2026, along with the skepticism they deserve. By the way, I should reiterate that I personally don’t invest in alternatives as I don’t feel like they add enough differentiation to my portfolio to be worth the increased PITA factor.
Private credit continues to attract massive investor interest. The pitch is straightforward: higher yields than traditional bonds, steady income, and access to lending opportunities outside the big banks.
In a higher-rate world, that can make sense on paper. But the more money that flows into private credit, the more competitive the space becomes. Underwriting standards can slip. Fee structures can get confusing and thickened. And the smooth income profile often masks the fact that liquidity is limited and defaults don’t show up until they really show up. I’m honestly pretty scared about this market. It’s a bit of black box in terms of transparency and there is increasing competition means there is more money chasing mediocre credit risk profiles.
Private equity also remains popular (building on momentum from the last few years) because it promises access to growth outside public markets. Infrastructure is frequently marketed as a long-term, steady-return play tied to real-world assets like energy, transportation, and digital networks.
Historically speaking, there is some logic there. Long-term capital projects and private business growth can generate real returns. Private markets reward patience, manager selection, and scale. They are dominated by massive sovereign wealth funds, public sector pension plans, and other pools of money that are well over the $100 billion mark. That doesn’t always leave a lot of leftovers on the table for retail investors to make use of.
Commodities and certain real assets remain part of the diversification conversation, especially when inflation risk is top of mind.
In the right environment, they can provide useful diversification. In the wrong environment, they can be volatile and unpredictable. Broad exposure through diversified funds is generally more defensible than concentrated bets on a single commodity or niche theme. I’d argue that there is an interesting case to be made for completely uncorrelated assets like farm or timber land in 2026.
The bottom line about alternative investments in 2026 is that while they are more accessible than ever, that’s both an opportunity and a warning sign.
As investments become “buzzy” and popular, they often become crowded. As access expands, so does the opportunity for investment companies to create funds full of complex fees and penalties. I’m very skeptical of all the new money pouring into private equity and private credit funds. It seems like a reach to think that all this money chasing ever-decreasing private opportunities is somehow all going to find a home that generates solid return on investment.
