Should I buy physical gold or a gold ETF?

A gold ETF is usually recommended over physical gold. It is more efficient, easier to manage, and avoids the extra charges, storage, and resale issues that come with physical gold.

How do managed futures help a portfolio?

Managed futures are used to enhance diversification and reduce equity risk. They can potentially lower overall portfolio volatility when combined with bonds and gold.

Are cryptocurrencies a safe diversification tool?

Many users view cryptocurrencies as speculative or similar to gambling. They suggest only using money you can afford to lose, often referred to as fun money.

Best Non Traditional Assets for Portfolio Diversification

Q: Is direct real estate ownership a passive investment?

No. Users note that owning physical rental properties requires significant work and is not as passive or reliable as equity markets, often involving substantial maintenance and tax expenses.

Real estate, gold, and managed futures are frequently suggested non-traditional assets to help reduce overall portfolio risk, though they can bring added complexity or liquidity issues.

Users often recommend REITs for indirect real estate exposure instead of direct property ownership, as physical rental properties require significant work and carry maintenance and tax expenses.

Gold ETFs are generally preferred over physical gold to avoid storage and resale issues, while managed futures can help lower overall volatility. Other options include peer to peer lending, crypto, and private equity, though users warn these can be speculative, region restricted, or burdened with high fees.

Best Non Traditional Assets for Portfolio Diversification — infographic

To diversify your investment portfolio beyond traditional stocks and bonds, Users frequently suggest real estate, gold, and managed futures as key non-traditional assets. These can help reduce overall portfolio risk and potentially improve risk-adjusted returns, though many alternative investments come with higher complexity or liquidity issues.

Real Estate

Consider REITs for indirect exposure. Investing in Real Estate Investment Trusts (REITs) or REIT ETFs provides exposure to the real estate market without the complexities of direct property ownership. "If you want exposure to RE you can get it by buying REIT ETFs."

Direct real estate can be less passive. Owning physical rental properties can offer returns but often involves significant work and is not as passive or reliable as equity markets. "real estate is included in global markets... you can make money in real estate; but its not nearly as passive or as reliable as equity markets."

Residential real estate can be risky. While some Users have found success, many caution that residential real estate can be riskier than a diversified portfolio of index funds, involving substantial maintenance and tax expenses. "RE as an investment is not only much riskier statistically than a Boglehead portfolio, there are many other factors to plug into the math."

Precious Metals (Gold)

Gold serves as a diversifier. Gold can play a role in diversification, particularly for reducing equity risk, but it's generally recommended to keep its allocation small. "If you want to add diversification to reduce equity risk, I'm a big believer in a combination of bonds, gold and managed futures."

ETFs offer efficient gold exposure. For most investors, using a gold ETF is more efficient than holding physical gold due to lower costs, easier management, and avoiding storage or resale issues. "I’d skip the extra charge for physical gold, plus its storage (and insurance?) and resale issues and head straight for a gold ETF."

Managed Futures

Managed futures can enhance diversification. Managed futures, often accessed through funds or ETFs, are highlighted as an effective way to diversify a portfolio and potentially lower overall volatility. "If you want to add diversification to reduce equity risk, I'm a big believer in a combination of bonds, gold and managed futures."

Other Non-Traditional Assets

Peer-to-peer lending. Some Users have found success with peer-to-peer (P2P) lending, though its availability can vary by region due to regulations. "Add P2P lending to the mix. Works for me."

Crypto and alternative collectibles. While some Users have seen significant returns from early investments in cryptocurrencies like Bitcoin, others view them as speculative or "gambling," suggesting they should only be used with "fun money." "Bitcoin and Ethereum. Got in early luckily and it’s paid off well."

Private equity. Private equity investments can offer diversification, but Users warn about potential issues like high fees and lack of transparency. "I got into a private equity investment group... The General Partner makes sure they get their fees tho."

Do you want to explore the specifics of any of these non-traditional assets further?

Best for: Investors looking to reduce reliance on traditional stocks and bonds who can handle added complexity and liquidity constraints.