# Alternative Assets: What REITs, Commodities, and Crypto Actually Add
"Alternatives" is a broad category covering everything from real estate investment trusts to cryptocurrency to fine art. The diversification claim is common to all of them. The evidence for that claim varies enormously.
REITs (Real Estate Investment Trusts)
REITs are the most evidence-backed alternative asset class. They own and operate income-producing real estate, are required to distribute 90% of taxable income, and trade on exchanges like stocks.
**Portfolio benefit:** REITs have historically had moderate correlation with equities (0.5–0.7) and meaningful correlation with inflation — they provide some inflation protection that pure equity/bond portfolios lack. Their income yield is higher than typical equities.
**Caveats:** REITs are included in broad market index funds like VTSAX (approximately 3% weight). A separate REIT allocation adds concentration, not necessarily new exposure. REITs are highly interest-rate sensitive — when rates rise, REIT valuations fall due to the discount rate effect.
**Tax:** REITs distribute ordinary income, not qualified dividends — they are tax-inefficient in taxable accounts. Hold them in tax-advantaged accounts.
Commodities and Gold
**Commodities portfolio benefit:** Commodities (oil, agricultural products, metals) have low correlation with stocks and bonds and positive correlation with inflation. During inflationary periods, commodity exposure protects real portfolio value.
**Caveats:** Commodity futures suffer from roll yield (the cost of rolling expiring contracts into new ones) in contango markets. Long-run returns on a commodity futures portfolio have been near zero or negative after roll costs. The diversification benefit is real; the return generation is not.
**Gold:** Gold occupies an unusual position — a non-productive asset (generates no earnings) with significant psychological and historical weight as a store of value. Gold has very low or slightly negative correlation with equities during market crises. Long-run real returns on gold are approximately zero — it preserves purchasing power but doesn't compound real wealth. A 5–10% portfolio allocation is the most common recommendation for crisis protection without meaningful performance drag.
Interactive Model
Alternative Asset Comparison & Allocator
Explore return, risk, and correlation characteristics of alternative assets — and build a blended portfolio.
Asset details
Est. annual return
8.5%
Volatility (SD)
18%
Stock correlation
0.65
Tax efficiency
Low
Inflation hedge. High income, tax-inefficient. Hold in tax-advantaged.
Build your allocation (100% total ✓)
Blended expected return
7.7%
Portfolio volatility est.
9.8% SD
Median 20yr outcome
$400,208
Return and volatility estimates are long-run approximations from historical data and academic research. Cryptocurrency returns are highly uncertain. Correlation assumptions simplify complex real-world interactions. Not financial advice.
Cryptocurrency
**Portfolio benefit:** High historical returns (with astronomical volatility). Low historical correlation with traditional assets — though correlation has increased as institutional ownership has grown.
**Caveats:** Cryptocurrency lacks intrinsic value from earnings or cash flows. Returns have been driven by adoption curves and speculation. The volatility (60–80% drawdowns are common) makes it unsuitable as a large portfolio allocation. The long-run return thesis is hypothesis, not established track record.
For investors who choose to include crypto: 1–5% of the portfolio — enough to participate in upside without a catastrophic impact on total portfolio if it falls 80%.
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*Related: [Asset allocation](./asset-allocation-age) — where alternatives fit in a complete portfolio. [Inflation erosion](./inflation-erosion-retirement) — real assets as an inflation hedge.*