Expanding Your Portfolio with Traditional & Semi-Traditional Assets

Real Estate - Commodities - Treasury Securities & Money Market Funds - Certificate of Deposit (CDs)

In the previous episodes, we explored the basics of asset classes, then took a deep dive into core investments like stocks, bonds, mutual funds, and ETFs. Now, let’s broaden our view and look at several other important categories that can enhance diversification and potentially stabilize returns. These “traditional and semi-traditional” options include Real Estate, Commodities, Treasury Securities & Money Market Funds, and Certificates of Deposit (CDs). Each offers unique benefits, risks, and roles within an investment portfolio.

Real Estate

What Is Real Estate Investing?

Real estate investing generally involves purchasing property—residential, commercial, or industrial—with the goal of earning income (through rent) and/or capital gains when selling the property at a higher price. However, direct property ownership is not the only way to invest in real estate. Many investors opt for Real Estate Investment Trusts (REITs) or crowdfunding platforms to gain exposure to the real estate market without the responsibilities of direct ownership.

Benefits

• Steady Income Potential: Rental payments can provide a consistent cash flow.

• Tangible Asset: Real estate is something you can see and touch, often giving investors a greater sense of security.

• Hedge Against Inflation: Property values and rental rates tend to rise with inflation over the long term.

Considerations & Risks

• High Entry Costs: Buying property outright typically requires a substantial down payment.

• Liquidity Constraints: Real estate can be slow to sell; it’s not as liquid as stocks or bonds.

• Maintenance & Management: Direct ownership can involve significant time and expense (repairs, taxes, tenant issues).

Portfolio Tip:

If you’d like real estate exposure without becoming a landlord, consider REITs or real estate mutual funds/ETFs. These vehicles invest in property portfolios and trade like stocks, offering more liquidity and diversification.

Commodities

What Are Commodities?

Commodities are raw materials such as precious metals (gold, silver), energy sources (oil, natural gas), and agricultural products (wheat, corn, coffee). They are typically bought and sold on global exchanges, with prices influenced by supply-demand dynamics, geopolitical events, and economic data.

Benefits

• Diversification: Commodities often move differently from stocks and bonds, which can help reduce overall portfolio volatility.

• Inflation Hedge: Rising commodity prices can offset losses when inflation erodes the value of traditional assets.

Considerations & Risks

• Volatility: Commodity prices can swing dramatically due to unpredictable factors (weather, political unrest, trade policies).

• Storage & Logistics: Owning physical commodities (like gold bars) involves secure storage and insurance costs.

• Investment Vehicles: Many investors gain exposure through commodity ETFs, futures, or mining stocks rather than holding raw materials directly.

Portfolio Tip:

A modest allocation to commodities—often through ETFs or mutual funds—can provide an inflation buffer and diversify away from stocks and bonds. However, keep an eye on fees and the specific type of exposure (e.g., physical commodities vs. futures contracts).

Treasury Securities & Money Market Funds

Treasury Securities

Treasury securities are bonds and bills issued by the U.S. government to fund its operations. Common examples include Treasury Bills (T-Bills), Treasury Notes, and Treasury Bonds (T-Bonds). They are considered some of the safest investments since they’re backed by the U.S. government’s “full faith and credit.”

• T-Bills: Short-term securities (maturity of one year or less) sold at a discount and redeemed at face value.

• Treasury Notes: Medium-term (2 to 10 years).

• Treasury Bonds: Long-term (20 or 30 years).

Why Invest?

• Safety: Among the lowest-risk assets available.

• Predictable Income: Known interest (coupon) payments until maturity.

• Liquidity: They can be easily bought and sold in the secondary market.

Money Market Funds

Money market funds are mutual funds that invest in short-term, high-quality debt (like T-Bills, commercial paper, and certificates of deposit). They aim to maintain a stable share price (often $1 per share) while earning a modest return.

• Low Risk, Low Return: Provides quick access to cash with minimal volatility.

• Parking Your Cash: Ideal for short-term savings or as a place to hold funds while deciding on longer-term investments.

Portfolio Tip:

Treasure securities and money market funds can act as a “safe harbor” in turbulent markets, offering stability and liquidity. They’re especially useful for the portion of your portfolio dedicated to capital preservation or short-term needs.

Certificates of Deposit (CDs)

How CDs Work

A CD is a savings product offered by banks and credit unions. You deposit a fixed amount of money for a set period—ranging from a few months to several years—and in return, you earn a predetermined interest rate.

Benefits

• Predictable Returns: You know exactly how much you’ll earn by the maturity date.

• FDIC Insurance: Bank-issued CDs are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per insured bank.

• Useful for Short-Term Goals: CDs can be a good option for money you won’t need until a specific time (e.g., saving for a wedding or house down payment).

Considerations & Risks

• Early Withdrawal Penalties: Accessing your funds before maturity usually incurs a penalty.

• Opportunity Cost: If interest rates rise during your term, your money is locked in at the older, lower rate.

• Inflation Risk: In periods of high inflation, CD returns may lag behind rising prices.

Portfolio Tip:

Consider using a CD ladder, where you stagger maturity dates to balance liquidity needs with higher rates on longer-term CDs. This strategy can help ensure a steady flow of maturing funds and lock in potentially better rates.

Wrapping Up

Real estate, commodities, Treasury securities, money market funds, and CDs each bring unique attributes to an investment portfolio. Some, like real estate and commodities, may offer diversification and potential inflation protection—albeit with higher volatility. Others, like Treasuries, money market funds, and CDs, prioritize stability and capital preservation.

Including a blend of these “traditional and semi-traditional” options can help smooth out returns, protect against different economic environments, and support specific goals (such as generating income or preserving capital). As always, the best mix depends on your personal risk tolerance, time horizon, and investment objectives.

In the next episode, we’ll dive into more modern and alternative asset classes—from cryptocurrencies to options and futures. Stay tuned to expand your understanding and refine your strategy for building a robust, all-weather portfolio.