10 Alternative Assets to Buy to Prepare for a Market Crash

The optimists and pessimists of the financial world are at odds on the state of the market in 2020. The upbeat crowd believes the market's rally since March is fully justified, as investors focus on the economic recovery that will inevitably follow the coronavirus crisis. But there's another school of thought, and it's backed by serious investors like GMO co-founder Jeremy Grantham. That camp maintains that share prices are simply too high, given the uncertainty surrounding the progression of COVID-19 and the timing of an economic recovery. Those pessimists are worried there's a bubble brewing in the stock market. And bubbles, unfortunately, tend to burst.

One way to prepare for the possibility of a market crash is to direct some of your wealth into alternative assets that don't move in lockstep with the financial markets. Here are 10 that may have a place in your portfolio.

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Gold has a history of performing well in times of crisis. Between October of 2007 and March of 2009, the S&P 500 fell nearly 57% -- but gold rose 26%. In the aftermath of the dotcom bubble, the S&P 500 dropped 49% and gold gained 12.4%. Even in the first half of 2020, when the S&P 500 lost 3% of its value, gold rallied 17%.

You can purchase physical gold from a dealer if you have a safe place to store it. But it's easier to invest in gold by way of gold certificates or gold ETFs. A gold certificate documents your ownership in physical gold that's stored by a third-party, such as The Perth Mint. Gold ETFs like SPDR Gold Shares ETF (NYSEMKT: GLD) and Aberdeen Standard Physical Gold Shares ETF (NYSEMKT: SGOL) hold actual gold bullion in vaults to track the spot price of gold less fund expenses.

ALSO READ: Thinking About Investing in Gold? Why This Gold ETF Is a Better Buy Than Gold Mining Stocks

Demand for gold drives business for gold miners. And gold miners can have more upside in times of crisis than the gold itself. That's because gold is a static physical asset; its value increases with demand but it doesn't get bigger or more efficient over time. A mining company, though, has the option to increase the size and efficiency of its operation to create more value.

You can invest in gold mining stocks directly, but that's risky if you're not familiar with the mining business model. A safer alternative is to diversify your exposure to gold miners with an ETF, such as VanEck Vectors Gold Miners ETF (NYSEMKT: GDX) or Sprott Gold Miners ETF (NYSEMKT: SGDM). Both funds invest in large and mid-sized mining companies. GDX tracks the Arca Gold Miners Index and has an expense ratio of 0.52%. SGDM tracks the Solactive Gold Miners Custom Factors Index and has a similar expense ratio of 0.50%.

Treasury Inflation-Protected Securities (TIPS) are bonds issued by the U.S. Treasury that are tied to the Consumer Price Index. If inflation as defined by the CPI rises to 5%, for example, the face value of your TIPS holdings is increased by 5%, which also raises the interest payment 5%. That inflation adjustment happens twice each year, and it could be a positive or negative change, but the principal value never goes below what you originally invested.

TIPS are safe havens generally, but they're obviously most attractive when you expect inflation to rise. You can buy TIPS directly from the U.S. government at TreasuryDirect.gov with as little as $100. Or, you can invest in a low-cost TIPS ETF like Schwab U.S. TIPS ETF (NYSEMKT: SCHP) for easy access to a range of maturities.

Real estate is a good hedge against market volatility because property values tend to be pretty stable. A rental property also appreciates in value over time, produces cash flow, and may provide some tax advantages.

There are risks, though. You'll have to finance the property, and taking on debt may not be the right move if you're expecting a market crash. Plus, changing economic conditions can affect the rent you're able to charge as well as tenants' ability to pay. And unexpected home repairs can easily eat into your cash flows.

Before diving into a rental property investment, research neighborhoods, property values, property taxes, market rents, and mortgage rates. Estimate your total costs and project your returns so you can weigh them against the risks.

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We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

If you don't want the hassle of becoming a landlord, you could invest in real estate investment trusts (REITs) instead. REITs own and manage properties, and distribute 90% or more of their taxable income to shareholders. REITs are attractive to investors because they deliver growth as the property portfolio increases in value, as well as ongoing income from the rental payments.

You can buy REITs directly on the stock exchanges, just like you'd buy a stock. You can also take the diversified approach with a REIT ETF like Vanguard REIT ETF (NYSEMKT: VNQ). Or, use a crowdfunded real estate platform like Fundrise to invest in private REITs.

ALSO READ: 2 REITs on My Radar

A timberland investment offers several paths to growth. The land itself appreciates over time, the trees get more valuable as they mature, and timber prices rise as housing activities increase -- making timberland an attractive inflation hedge.

You can invest in timberland via timber REITs and ETFs. REITs own land, and ETFs invest in companies that own land, produce forest-related products, or both. One of the largest timber REITs is Weyerhaeuser (NYSE: WY). You can buy shares of Weyerhaeuser directly, but you'll also find it as a primary holding in timber ETFs such as iShares Global Timber and Forestry ETF (Nasdaq: WOOD).

An annuity is a contract you make with an insurance company; you pay the insurer a fixed sum and receive a stream of payments in return. That income stream can be for a specified duration or for the rest of your life. You can set the annuity up so the payments begin immediately or on some future date. Note there are often tax implications to receiving annuity payments before the age of 59 and a half.

Annuities are complex and, usually, very expensive. But they do provide a fixed stream of income in your senior years. That can deliver peace of mind if you're worried about that a future market crash might reduce the income available from your retirement portfolio.

Long-short equity funds take long positions in stocks they view as underpriced and short positions on stocks they believe are overpriced. The goal is to achieve gains on the market's upward and downward trends.

Funds in this category vary widely in investment style and risk. Some maintain equal exposure to long and short positions to achieve modest returns with lower volatility. Other funds will adjust the composition of long and short exposure based on the fund manager's market outlook.

Because long-short funds are actively managed and have high turnover, you can expect the fees to be high. The Alger Dynamic Opportunities Fund (NASDAQMUTFUND: SPEDX), which has net assets of $244.68 million, has a net expense ratio of 2.17%. The Neuberger Berman Long Short Fund (NASDAQMUTFUND: NLSAX) has a similar expense ratio of 2.13%. NLSAX has net assets of $3.16 billion.

You don't need to buy land in Sonoma Valley to get into the wine business. Crowdfunding platform Vinovest lets you invest in premium bottled wines and wine futures with as little as $1,000. According to Vinovest's proprietary wine index, wine has appreciated faster than the S&P 500 over the past 30 years.

The company's team of wine experts selects vintages with maximum appreciation potential. When you invest, you are buying specific bottles that Vinovest insures and stores on your behalf.

You have access to your portfolio inventory and its current value via Vinovest's website. When you're ready to sell, Vinovest helps you find a buyer through its marketplace. And yes, you can have your wine shipped to you if you want to drink it -- though that would wreck your upside potential.

ALSO READ: 3 Stocks to Buy With Dividends Yielding More Than 4%

According to Hagerty's Affordable Classics Index, classic cars costing less than $30,000 grew in value at an annual rate of about 3.5% between 2007 and 2020. German collectible cars produced a higher growth rate of about 11%, though that growth largely occurred before 2015.

If you're interested in cars and you know how to pick them, store them, and maintain them, the right type of car investment could put your money to work outside the stock market. The risks are high, though. Collectible car values aren't directly correlated with the financial markets, but they do have their own volatility. Muscle cars, for example, dropped in popularity and lost value from 2008 and 2014, while 1950s American cars didn't appreciate at all between 2009 and 2019.

Unless you can reasonably predict those trends going forward, your classic car purchase may be more of a hobby than an investment.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

When diversifying your assets in preparation for a market crash, take care not to oversteer. Choose an allocation that gives you some downside protection but doesn't depend on a crash to make sense. Ideally, your alternative assets will add value regardless of how the traditional equity and debt markets perform going forward.

Catherine Brock has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Vanguard REIT ETF. The Motley Fool has a disclosure policy.