Once you understand equities, bonds, and property, you’ll inevitably encounter other asset classes that don’t fit neatly into those categories. Gold, commodities, cryptocurrency, collectibles, private equity — the universe of “alternative” investments is vast. Most of them don’t belong in a beginner’s portfolio. But understanding what they are helps you evaluate whether any deserve a place in yours.

Beyond stocks and bonds

Alternative assets share certain characteristics: they tend to be less liquid, less transparent, harder to value, and less correlated with traditional markets. That last point — low correlation — is their main theoretical appeal. If they zig when stocks and bonds zag, they can reduce overall portfolio volatility.

But lower correlation doesn’t automatically mean better returns. Many alternatives offer diversification benefits at the cost of lower expected returns, higher fees, or greater complexity. The question isn’t “is this interesting?” but “does this improve my portfolio’s risk-adjusted return after costs?”

Gold and commodities

Gold has been valued for millennia. Its investment case rests on several pillars:

  • Store of value during periods of extreme uncertainty or inflation.
  • No counterparty risk: a gold bar doesn’t depend on any company or government surviving.
  • Low correlation with stocks and bonds over long periods.

However, gold produces nothing. It generates no income, no dividends, no interest. Its price depends entirely on what someone else will pay for it in the future. Over very long periods (centuries), gold has roughly preserved purchasing power — nothing more.

A small allocation (5-10%) can serve as portfolio insurance against extreme scenarios. But making gold a major holding means sacrificing the productive growth that equities provide.

Other commodities (oil, agricultural products, metals) are generally not suitable for individual investors. They require specialised knowledge, often involve futures contracts with complex mechanics, and have not reliably produced positive real returns for passive holders over long periods.

Cryptocurrency

Cryptocurrency is the most polarising asset class of the current era. Views range from “the future of money” to “the largest speculative bubble in history.” The truth is probably somewhere in between, and it’s still being written.

What crypto is: Digital assets operating on decentralised blockchain networks. Bitcoin is the most established; Ethereum enables smart contracts; thousands of others exist with varying purposes and credibility.

The bull case: Potential as digital gold (store of value), platform for decentralised finance, hedge against currency debasement, technological innovation with real utility.

The bear case: Extreme volatility (80%+ drawdowns are common), no intrinsic cash flows, environmental concerns, regulatory uncertainty, and a history of fraud and scams in the broader ecosystem.

For a prudent investor: If you believe in the long-term thesis, a small allocation (1-5% of portfolio) limits downside while providing exposure to potential upside. Never invest more in crypto than you can afford to lose entirely. And never invest in any cryptocurrency you cannot explain clearly to someone else.

How to think about alternatives

A useful framework for evaluating any alternative investment:

Does it produce something? Stocks produce earnings. Bonds produce interest. Property produces rent. Gold and crypto produce nothing — their value depends entirely on future buyer sentiment. Productive assets have a structural tailwind; non-productive ones don’t.

What’s the expected return? Can you articulate, based on evidence, what return this asset class has delivered historically and why you expect it to continue? If the answer is “it went up a lot recently,” that’s not an investment thesis.

What’s the cost? Many alternative investments carry high fees, wide bid-ask spreads, or hidden costs. These drag on returns compound over time.

Does it add something my portfolio doesn’t already have? If your global equity fund already includes mining companies (gold exposure) and tech companies (tangential crypto exposure), the diversification benefit of adding those assets directly may be marginal.

Can I hold it through a 50% drawdown? If the answer is no, the allocation is too large regardless of the theoretical case.

Alternative assets are seasoning, not the main course. A well-constructed portfolio of global equities and bonds provides everything most people need for long-term wealth building. Alternatives can add marginal diversification or hedge against specific scenarios. But they should never form the core of a portfolio built for reliability — because reliability is exactly what most alternatives lack.