Real estate, REITs, gold, silver and oil: how real assets fit in a portfolio

Real estate

Owning property directly can provide rental income and potential price growth, and often uses a mortgage, which adds leverage (amplifying gains and losses). It is illiquid, concentrated in one location, costly to buy and sell, and needs ongoing work. It can be right for some people, but it is a business as well as an asset.

REITs

A real estate investment trust owns or finances income-producing property and must distribute most of its income as dividends. Shares trade like stocks, and REIT funds (for example VNQ in the US) give diversified exposure without buying a building. They are sensitive to interest rates and move with the stock market more than direct property does.

Gold and silver

Gold has a long history as a store of value and is often viewed as a hedge in times of fear or inflation, but its price can be flat or fall for long periods and it pays no interest or dividends. Silver is also an industrial metal, so it tends to be more volatile. Exposure can come through funds backed by physical metal (such as GLD), mining company shares, or physical coins and bars, each with different costs and risks.

Oil and other commodities

Commodity prices swing with supply, demand and politics. Many commodity funds hold futures contracts, which can behave differently from the spot price because of the cost of rolling contracts. Energy company shares are another route, with business risk as well.

Stocks vs the alternatives

• Stocks: ownership in productive businesses; historically the main long-term growth engine.
• Bonds: income and generally lower volatility.
• Real estate: income and growth, illiquid when owned directly.
• Gold and commodities: no income; value comes from price changes.
• Cash and savings: stable, but lose buying power to inflation.

Inflation

Over time inflation shrinks the value of cash. Assets tied to real things or to businesses able to raise prices have sometimes held up better, but no asset reliably protects against inflation in every period. An inflation calculator shows what today’s money might be worth later.

Diversifiers help when they behave differently. Size them so a bad year in one cannot undo the rest.