Alternative assets can also be wildly volatile. Bitcoin is the poster child of volatility; the cryptocurrency gained 1,400% in 2017, but regularly experiences corrections in excess of 30%. The price of gold, too, can move quickly in both directions. Between 2012 and the end of 2015, for example, the price of gold fell 40%. And this year, gold rose some 17% between June and August, only to fall about 6% since. Even residential real estate, one of the least volatile investment types, has had periods of volatility — as we saw in the 2000s.
How to add alternative assets to your portfolio
Alternative assets can diversify your portfolio and offset some of the volatility you’ll see in equities. But don’t forget: If an asset tends to go up when equities are down, that same asset will go down when equities are up. Accept that fact and you are ready to add some alternatives to your portfolio — not because you think the market will crash tomorrow, but because you want to diversify for the long term.
A good starting point is an ETF that holds assets you understand, like real estate or gold. The advantage of alternative asset funds is that they’re more liquid and easier to own than the actual asset. There is a disadvantage, though. Funds are more closely correlated to the stock market than, say, an actual piece of property. Given that you can buy a share in a real estate ETF for about $100, but you can spend 100 times that on a single property, the trade-off may be worth it.