To investors, the words "alternative investments" often rank alongside scary terms like "market crash" and "busted bubble."
But alternatives increasingly are being employed by financial advisors in sound investment portfolios. Many advisors pointedly learned the importance of alternatives during the 2008 financial crisis, when client assets suffered sharp declines in value. Some drops, depending on specific investments, clocked in at as much as 50 percent.
"Advisors realized they needed to mitigate that kind of drop," said Nadia Papagiannis, director of alternative fund research at Morningstar, an independent investment research firm. "They became more aware of risk in [client] portfolios."
(Read more: Using alternative strategies for average investors)
Defining alternatives is tricky. Some advisors view them as anything that falls outside traditional investments, such as bonds and publicly traded equities; others say they are investments whose role is to zig when the broader market zags—investments that mitigate portfolio volatility or hedge against potential downsides.