Investing Beyond Stocks: Real Estate, REITs, and Alternative Assets
Diversify beyond the stock market with real estate, REITs, bonds, and other alternative investments. Learn what works, what doesn't, and how to build a truly diversified portfolio.
A portfolio of 100% stock index funds is a great foundation. But true diversification means owning assets that don't all move in the same direction at the same time. When stocks crash, other assets might hold steady or even increase in value.
This guide covers the major alternative asset classes and helps you decide which ones deserve a place in your portfolio.
REITs are companies that own, operate, or finance income-producing real estate. They're required to distribute at least 90% of taxable income as dividends, making them excellent income investments.
REIT dividends are mostly taxed as ordinary income, not at the lower qualified dividend rate. For this reason, hold REITs in tax-advantaged accounts (IRA, 401k) when possible.
Buy a multi-unit property (duplex, triplex, fourplex), live in one unit, and rent out the others. The rental income covers most or all of your mortgage.
The math on a duplex:
Purchase price: $300,000
Your mortgage: $2,000/month
Rental income from other unit: $1,500/month
Your effective housing cost: $500/month
You're building equity, getting tax deductions, and living for a fraction of normal housing costs.
Owning rental property is a business, not a passive investment. You need to:
Screen tenants carefully
Handle maintenance and repairs
Manage cash flow and reserves
Understand landlord-tenant law
Budget for vacancy (typically 5-8% of annual rent)
The 1% Rule: A good rental property should generate monthly rent of at least 1% of the purchase price. A $200,000 property should rent for at least $2,000/month.
Bonds provide stability and income. While they won't make you rich, they cushion your portfolio during stock market downturns. In 2022, when the S&P 500 dropped 19%, many bond funds only dropped 5-10%.
Treasury Bonds (Safest)
Backed by the US government. Currently yielding 4-5%. Buy through TreasuryDirect.gov or bond ETFs.
I-Bonds (Inflation Protected)
Savings bonds that adjust their interest rate based on inflation. Currently limited to $10,000/year per person through TreasuryDirect.gov. The rate adjusts every 6 months to match CPI inflation.
Corporate Bonds
Issued by companies. Higher risk than treasuries, but higher yield. Investment-grade corporate bonds yield 5-6%.
Municipal Bonds
Issued by state and local governments. Interest is exempt from federal tax (and sometimes state tax too). If you're in a high tax bracket, the tax-equivalent yield can be very attractive.
Gold, silver, oil, and other commodities can serve as inflation hedges and portfolio diversifiers. However, commodities don't produce income (no dividends, no interest) — your return comes entirely from price appreciation.
Best for most people: A small allocation (5% or less) through a gold ETF (GLD or IAU) as an inflation hedge and crisis insurance.
Platforms like Fundrise, CrowdStreet, and Arrived allow you to invest in private real estate deals starting from $10-500. Returns can be attractive (8-12% annually), but these investments are illiquid — you often can't access your money for 3-5 years.
Diversification beyond stocks isn't complicated — it's about adding a few complementary asset classes that behave differently during various market conditions. Start with REITs and bonds, then explore other alternatives as your portfolio and knowledge grow.
The best portfolio is one you understand and can stick with through every market environment.
