Can Alternative Assets Outperform Stocks During a Market Crash?
Market crashes often lead investors to search for more stable options beyond traditional stocks.
Alternative assets like gold, real estate, private equity, merchant cash advances (MCAs), and cryptocurrencies are often considered potential hedges against economic turbulence.
But how do they actually perform during downturns?
How Alternative Assets Behave in Crashes
Each alternative asset reacts differently during a crash, offering unique risks and rewards:
- Gold: Often regarded as a safe haven, gold tends to hold or gain value during market volatility, though its returns can depend on market sentiment.
- Real Estate: Rental income can give you stability, even if property values dip. However, highly leveraged or speculative real estate can be more vulnerable.
- Private Equity: Focused on long-term growth, private equity can weather short-term volatility but is less liquid, making quick sales more difficult.
- Merchant Cash Advances: While downturns increase the risk of defaults, MCAs may also filter out weaker applicants, potentially stabilizing returns.
- Cryptocurrencies: Highly volatile and speculative, crypto can offer high-risk, high-reward potential, appealing to investors with strong risk tolerance.
Historical Performance
During crashes like 2008 and 2020, gold held strong while stocks declined. Real estate showed mixed results—some markets remained stable, while debt-reliant areas struggled.
Cryptocurrencies, still emerging in 2020, were extremely volatile. These variations emphasize the importance of diversification.
Pros and Cons of Alternatives in Downturns
Alternative assets often have low correlation with stocks, offering diversification benefits. Certain assets, like real estate, could offer you steady rental income. While others, like private equity, may pay dividends.
Plus, certain assets like collectibles can grow in value over time, even during tough economic periods, offering you a chance for growth when traditional markets are down.
However, illiquidity and valuation challenges can limit flexibility during economic uncertainty.
Want to understand which alternative assets fit your investment style during a market crash? Take our quiz What’s Your Risk Tolerance for Market Crashes? below to discover the best options for your portfolio!
