While most investors begin their career with stocks and bonds, there’s a wide variety of alternative investments that can act as great diversification tools to a traditional portfolio. Real estate and gold have long been viewed as viable alternative investments, but crypto is now on the rise as well. Here’s a look at the pros and cons of these three asset classes and the characteristics of each so you can discuss with your financial advisor if they’re a good fit for you.
The housing market has been on fire over the past year or so, and many investors are paying more attention to real estate as an investment. The value of real estate doesn’t correlate with the stock market, so it’s a great way to diversify one’s holdings. There are also many options when it comes to real estate investing, from personal home ownership to rental properties and commercial buildings.
Generally, real estate grows a bit more than the inflation rate. There are also many ancillary benefits to investing in real estate, from potential tax write-offs to steady cash flow. Of course, picking the right real estate investment is like choosing a stock — not all are the same, and for real estate, location really can be everything. Liquidity can also be a problem with real estate, as transactions can take days, weeks or even months. Another potential drawback for some investors is that real estate can require a large investment, often in the hundreds of thousands of dollars. One way around this is to buy a real estate investment trust, which can be purchased like a stock for just a few dollars per share.
Gold has long been touted as a “real asset,” one that investors flock to in times of economic upheaval or uncertainty. Gold is also used as an inflation hedge, as it is seen as a store of value when other assets become worth less due to the effects of inflation. Gold also doesn’t correlate very well with the stock market, making it a good diversification tool.