Why add international stocks instead of just us stocks?

International stocks reduce single country risk and avoid heavy concentration in specific sectors like us tech. They often perform differently than the us market, providing a buffer during domestic underperformance.

What is the main purpose of bonds in a portfolio?

Bonds act as a shock absorber to provide stability when stocks decline. They also fit best in tax advantantaged accounts like traditional iras since their dividends are taxed as regular income.

How does gold help a portfolio?

Gold serves as an inflation and geopolitical chaos hedge. Over decades, it remains largely uncorrelated with stocks and bonds, even if it does not always work in the short term.

Why keep cash or t bills in a portfolio?

Cash or t bills provide liquidity and optionality. Holding them allows you to capitalize on market downturns by buying dips instead of just watching them.

Why Diversify with Traditional Assets over Stocks

Diversification is the main reason users look into traditional assets, aiming to lower portfolio volatility and reduce the risks tied to a single asset class like stocks.

Moving beyond us stocks helps avoid single country risk and heavy sector concentration, while bonds act as a shock absorber during equity downturns and belong in tax advantaged accounts.

Other traditional assets like gold act as an inflation and chaos hedge, real estate offers cash flow through leveraged growth, and cash or t bills provide the optionality to buy market dips.

Why Diversify with Traditional Assets over Stocks — infographic

Yes, diversification is often the primary reason Users consider traditional asset exposure, particularly when looking beyond a single asset class like stocks. Users frequently discuss international stocks, bonds, and other asset classes to reduce overall portfolio volatility and mitigate specific risks.

Diversifying Beyond US Stocks

Mitigate single-country risk. Many Users diversify internationally because no single country consistently outperforms forever, and global funds allow the market to determine geographic allocation. "No one knows which region will lead next year or next decade. That uncertainty is exactly why we’re Bogleheads."

Reduce correlation with US market. International stocks can offer performance uncorrelated with the US market, providing a buffer during periods of US underperformance. "Portfolios diversified across multiple asset classes have outperformed those concentrated in US stocks only so far this year."

Avoid concentration in specific sectors. Some Users diversify away from heavily concentrated sectors, such as US tech stocks, by adding international exposure. "Tech stocks have become too large a part of the broad indexes."

The Role of Bonds

Shock absorber for volatility. Bonds, especially long-term treasuries, are viewed not for their returns but for their ability to absorb shocks and provide stability when equities decline. "When equities crash hard, long-term treasuries tend to spike. They buy you time and reduce the emotional pressure to sell at the bottom."

Tax-efficient placement. Some strategize to place bonds in tax-advantaged accounts like Traditional IRAs due to their dividend-heavy returns, which are taxed as income. "If you have both stocks and bonds, the trad IRA is the place for the bonds without question."

Balancing risk and return. For those closer to retirement, bonds are seen as essential for reducing risk, even if it means lower expected returns compared to 100% stock portfolios. "If you can stomach such downturns then 100% stock is a fine idea, but studies and anecdotal evidence have shown people have a hard time estimating their tolerance before and even after such events."

Considering Other Traditional Assets

Inflation and geopolitical hedge. Gold is considered by some as an inflation hedge and a safeguard during geopolitical instability, offering diversification from traditional equities and bonds. "Gold: inflation hedge and chaos hedge. It doesn't always work short-term but over decades it's the one asset that's uncorrelated to almost everything else."

Real estate for stable cash flow and growth. While direct real estate investment can be complex, some consider it for diversification, particularly for stable cash flow or as an alternative to market investments. "It can give great returns but requires legwork. It’s a leveraged asset, you are taking a loan out to get a a Higher principal to appreciate."

Cash/T-Bills for optionality. Holding a portion in cash or T-Bills provides liquidity and the ability to capitalize on market downturns, acting as a tactical diversification tool. "Having 10-15% in cash when markets are overextended means you can actually buy dips instead of just watching them."

Do you want to explore the specific types of traditional assets Users recommend for diversification?

Best for: Investors who want to reduce risk and volatility in their portfolio rather than maximizing returns with 100 percent stocks.