What percentage of an investment portfolio is typically allocated to alternative investments?

• A. 5%-10%
• B. 15%-20%
• C. 25%-30%
• D. 30%-35%

Answer: (B)

Diversification and risk management drive how much of a portfolio sits in alternative investments. Alternatives—like hedge funds, private equity, real estate, and commodities—often behave differently than stocks and bonds, so they can reduce overall portfolio correlation and potentially improve risk-adjusted returns. But they also come with higher fees, less liquidity, and different risk profiles.

Allocating around 15%-20% provides a balanced approach: it adds meaningful diversification without overexposing the portfolio to liquidity constraints or concentrated risk. Smaller allocations (5%-10%) may not capture enough diversification benefits, while larger allocations (25%-35%) can increase illiquidity and fee drag and raise risk.

So the typical, broadly suitable range is 15%-20%.