Diversify Your Portfolio The Right Way – Here Are 5 Assets With A Low To Negative Correlation With The Volatile Stock Market

0


Diversify Your Portfolio The Right Way – Here Are 5 Assets With A Low To Negative Correlation With The Volatile Stock Market

If your idea of ​​a diversified portfolio is one that just needs growth and value stocks, it’s a good thing you’re reading this.

With leading investors like Michael Burry, Jeremy Grantham, and Charlie Munger expecting a historic correction to hit the stock market, now is the time to take a long, thoughtful look at your portfolio.

Specifically, you need to make sure that it holds the types of assets that can help offset the potential losses associated with your exposure to the stock market.

Let’s take a look at five assets that can help you grow your portfolio, even in the midst of market chaos. We’ll start with three traditional asset classes, then look at two overlooked examples that show just how attractive and profitable alternative investments can be.

1. Obligations

Wooden blocks with the word Bonds and Coins.

Andrii Yalanskyi / Shutterstock

When inflation cuts fixed income yields, bonds can look even less attractive than usual.

But high inflation won’t last forever, and if the stock market is serious about its books, the guaranteed income associated with bonds, however modest, may be easier to bear than a historic decline in the value of stocks. .

In addition to the lower risk, investors also opt for bonds in times of economic uncertainty, as lower consumer spending can lead to lower profits and lower stock prices.

The bond market is large, so you should be able to find products that meet your needs as an investor.

Some examples are US savings bonds, mortgage backed securities and emerging market bonds. And getting exposure is now as easy as buying established bond ETFs such as iShares US Treasury Bond ETF, SPDR Long Term Corporate Bond ETF, and VanEck Investment Grade Floating Rate ETF.

2. Real estate

Property taxes and real estate market growth

Andrey_Popov / Shutterstock

Real estate is so detached from the stock market that it is one of the best protections against falling stock prices.

There has not been a period in recent American history when millions of people were unwilling to pay for housing, either by renting or buying their own properties.

Housing demand can fluctuate from neighborhood to neighborhood, but its relentless overall should continue to push up prices and rents no matter what on Wall Street.

Buying an investment property – a condo, a detached house, a triplex – is ideal for most investors. Others are happy to continue updating their own home for future sale.

You can also buy shares in a real estate investment trust, or REIT, which distributes rental income to shareholders. Names like Realty Income, Digital Realty Trust, and Public Storage should provide a good starting point for investors looking to investigate the space.

3. Commodities

Coffee bean, rice and corn on dollar chart and candle background.

FabreGov / Shutterstock

Commodities can help protect your portfolio from a falling stock market, but they come with their own risks.

When you invest in commodities, you buy the commodities that are used to produce consumer goods and you (hopefully) resell them at a higher price. Cotton, coffee, metals, livestock, and petroleum products are all commodities.

The prices of commodities reflect the dynamics of supply and demand in individual markets, so their performance is unrelated to the stock market. Commodities tend to have a low to negative correlation with stocks and bonds.

That said, investing in commodities is inherently volatile. Adverse weather conditions could ruin an investment in chickpeas; new regulations could kill your investment in coal. But if it all falls into place, the feedback can be tremendous.

The most convenient way to invest in commodities these days is through well-established, broad-based commodity ETFs such as the Invesco DB Commodity Index Tracking Fund.

If you want to invest in a specific commodity, there are also ETFs for that. For example, gold insects have long liked the SPDR Gold Shares ETF for easy market access.

Meanwhile, gold mining companies like Barrick Gold and Newmont should also do well if the price of the yellow metal increases.

4. Fine arts

Interior of the Museum of Modern Art (MoMA), an art museum, Midtown Manhattan, New York

Anton_Ivanov / Shutterstock

Like commodities, the values ​​of art depend on supply and demand; it’s just that the offer, when it comes to art, means a one-of-a-kind display of genius – something that people regularly pay millions for.

Besides being uncorrelated with the stock market, fine art has the ability to generate healthy returns.

Between 1995 and 2020, contemporary art topped the S&P 500 by 174%, nearly three times the returns, according to the Citi Global Art Market chart.

The fine arts were once an investment for wealthy aficionados with access to the capital and knowledge to make smart purchases.

Corn new platforms help everyday investors enter the fine art market by selling shares of modern masterpieces that may one day be sold for solid earnings.

“These artists tend to appreciate at rates ranging from single to double digits, but these are very good stores of value,” says Scott Lyn, CEO of art investment platform Masterpieces. “It is very unlikely that you will lose any money investing in any of these paintings.”

5. Sports cards

View of several brands of sports trading cards on display at a local department store.

Tonelson Productions / Shutterstock

Similar to investing and collecting as the fine art are sports cards, some of which can be worth a fortune.

In October, a rare Michael Jordan Upper Deck card was sold at auction for $ 2.7 million. Earlier this year, a Tom Brady rookie card was sold for $ 2.25 million.

Social media and a lot of pandemic-related free time spent rummaging through old collections have helped spark a new wave of interest in sports cards.

They’re like an alternative to meme stocks – they don’t always pay off, but when they do, be careful.

There are several ways you can play the sports card game:

  • Buy individual cards that you think will hold their value

  • Buy boxes of cards and go on a hunt for unique items that can sell for ridiculous amounts of money

  • Pool your money with other investors to buy high value cards and resell them at some point in the future.

  • Find a broker who, for a fee, will help you buy, sell and trade sports cards like stocks.

Be careful.

The bottom fell out of the sports card market in the mid-90s – too many companies, too many cards. With all the money the space is attracting today, expect more companies to try to get a share of it.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.


Share.

Comments are closed.