Alternative Investments: Should Retirees Consider Gold, Real Estate, Private Equity, or Crypto?

Every few years, a new investment trend captures attention. Recently, it has been crypto, private equity in retirement plans, and a renewed enthusiasm for gold and silver. Real estate is always a popular topic, and how it can create "passive" income.

The question retirees should be asking is not whether these investments are interesting. The question is whether they make sense as part of their retirement portfolio and income plan, designed to fund spending for the next 20 to 30 years.

At The Dala Group, we don't include alternative investments in our model portfolios. That is not because they never work. It is because most of them introduce unnecessary complexity, cost, illiquidity, and volatility that don't align with how we believe retirement assets should be managed.

Let’s define some categories of alternative assets and walk through why you might or might not want to include them in your retirement portfolio.

Cryptocurrency

Cryptocurrency is a form of currency that exists only in the digital world. Think of it as a form of virtual money that people can trade, similar to how you would exchange dollars for euros, but not backed by a central government. This is one of the most attractive features highlighted by proponents. They claim this will bring transparency to transactions and speedier execution.

At this point in history, the value of any one of the many cryptocurrencies is largely determined by investor sentiment. If more people want to own it, the price rises. If enthusiasm fades, the price falls. There are no earnings and no dividend payments attached to it. This structure explains the explosive growth followed by steep declines that crypto has experienced.

You may also hear about meme coins, which are a type of cryptocurrency typically created and promoted by celebrity personalities rather than for an economic purpose.

There are also stablecoins that aim to maintain value by pegging to a currency such as the US dollar. While they are designed to reduce volatility, they depend on the stability of the entity behind them, such as financial institutions or other private companies, which introduces its own risks.

Crypto will continue to mature and may find wider utility for everyday transactions. The key question for retirees is whether they need this level of uncertainty in a portfolio meant to fund their lifestyle.

Gold and Silver

I can’t help but have the Burl Ives song from “Rudolph the Red-Nosed Reindeer” roll through my head. Gold and silver are tangible commodities whose returns depend entirely on price appreciation. If you own them during a strong stretch, it can feel like an obvious win. The harder question is what role they should play going forward in a retirement plan built to fund decades of spending.

While there are industrial uses, most investors hold them as a hedge against inflation. They’re also considered a safe haven because their prices don’t usually move in tandem with the stock and bond markets, so holding them can provide diversification. However, over long periods of time, stocks have historically outperformed because metals can experience long stretches with little to no appreciation. The key is to make sure any allocation is tied to a clear purpose in your plan, rather than simply reacting to recent price movements.

Real Estate

You have two main avenues for owning real estate as an investment: direct ownership or through what's called a Real Estate Investment Trust, commonly known as a REIT.

Direct ownership is frequently touted on social media as passive income. In an ideal world, you have extra monthly income, an appreciating asset you can sell later or pass on, and tax benefits in the meantime. In reality, it involves management decisions, maintenance costs, tenant turnover, and liability concerns. Many investors focus on appreciation and overlook whether the property produces positive cash flow. There are plenty of rental properties where you're covering a deficit regularly, or the hassle involved isn't worth the small bit of extra cash you have when all is said and done. One of the biggest tradeoffs is illiquidity, meaning it might take a while to sell a property, and you can't always know the price you will receive.

Publicly traded REITs are more liquid and tend to behave like stocks, meaning they are traded on stock exchanges and are subject to market and interest rate changes. REITs come in all sorts of commercial and residential flavors and generate income through dividends, similar to receiving rents, but without the hassle of operating the rental yourself. But you don't own a specific property that appreciates or can be passed down.

Private Equity & Real Estate

Some of the most successful investment firms in the world operate in private markets. You can invest in non-public markets through private real estate and equity. With private equity, you pool your money with other investors, where a fund manager invests that capital to build businesses or acquire partial or complete ownership in companies that don't trade on stock exchanges. Private real estate funds follow a similar model, but instead of buying operating businesses, they buy and manage property. To participate in these investments, you normally have to meet regulatory rules to qualify as an accredited investor with specific net worth or income levels.

The appeal is access to companies earlier in their development and the potential for outperformance. The tradeoffs are high fees, complex financial arrangements, and capital that is typically locked up for years or subject to strict rules about when you can and can’t request redemptions. In other words, this is not money you can access quickly if your situation changes.

How Retirees Should Decide

Before allocating to any alternative investment, here are some questions to ask yourself:

• Can I explain how it generates a return?

• How volatile is it, and could I tolerate a sharp decline?

• How easily can I access my money?

• How much hassle do I want to take on?

• Are the fees clear?

• Does this improve my ability to meet my spending needs?

Your answers will make it clear whether these and other alternative investments are a good fit for you.

Our Thoughts

Retirement investing does not require exotic strategies to succeed. Our philosophy remains straightforward. We prefer strong companies, low-cost mutual funds and ETFs, and fixed income coordinated around your anticipated spending needs.

When evaluating companies to include in your portfolio, we emphasize understanding each company's financial strength and profit growth because those are measurable drivers of long-term returns. When selecting funds, we look for strategies that we believe deliver strong returns over a long-term horizon. We want to select funds that avoid overlap with one another, so we achieve meaningful diversification.

Retirement investing does not require complexity to succeed. It requires alignment with your goals and discipline to stay the course, even as hot trends come and go.