Where to Invest Outside of Stocks: A Guide to Building a Diversified Portfolio

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The stock market is the default investment vehicle for most Americans, and for good reason. It's liquid, accessible, and has compounded wealth reliably over long periods. But defaulting entirely into equities means accepting its volatility, its correlation patterns in downturns, and its tax treatment. Building a complete portfolio means understanding what else exists and how different assets behave under different conditions.

Why Smart Investors Diversify Beyond the Stock Market

Diversification works when assets move independently of each other. The problem with a portfolio of stocks and stock funds is that during market stress, correlations tend to rise. When institutional investors sell in a panic, they sell everything. A portfolio of 100 different equities may feel diversified, but in March 2020, nearly every stock fell sharply within weeks.

Beyond correlation, there are structural reasons to allocate outside equities. Inflation erodes the real value of cash and bonds, but some assets - particularly real estate and commodities - tend to retain purchasing power over time. Tax treatment matters too: certain alternatives offer depreciation deductions and deferred recognition that equities don't provide.

A broader question is what you're trying to accomplish. If you're building long-term wealth and have capital you won't need for 5-10 years, illiquid alternatives may offer a return premium for giving up liquidity. If you need income, certain assets generate cash flow that equities often don't. Your allocation should match your objective, time horizon, and risk tolerance.

Bonds and Fixed Income: The Classic Alternative to Stocks

Bonds are the traditional equity counterweight. When interest rates are stable or falling, high-quality bonds appreciate and provide predictable income. In a recession, investors often rotate into Treasuries as a safe haven. That said, bonds have had a difficult decade in periods of rising rates - when rates rise, bond prices fall, and long-duration bonds can lose significant value.

For investors looking outside stocks, short-duration bonds and Treasury bills can serve as a cash management tool or a stabilizer. High-yield corporate bonds offer more income but carry credit risk that correlates with equities during downturns. The role of fixed income in a portfolio depends heavily on the rate environment and your income needs.

Real Estate Investing: The Most Widely Held Alternative Asset Class

Real estate is one of the oldest and most widely held alternatives to equities. It generates income through rent, appreciates over time in many markets, and provides tax advantages through depreciation. It also behaves differently from stocks: rents are contractual, values are slow-moving compared to daily market prices, and leverage can amplify returns in ways that equity investing typically doesn't allow individual investors to access.

There are several ways to access real estate as an investor.

Direct Rental Property Ownership: Full Control, Full Responsibility

Buying and renting a property gives you full control and the full economics. It also gives you full responsibility - maintenance, tenant management, insurance, taxes, and the operational headaches that come with being a landlord. Direct ownership works well for investors who want control and are willing to manage the asset, but it's not passive income by any meaningful definition. Investors looking for truly passive real estate exposure have better structures available.

Real Estate Investment Trusts (REITs): Publicly Traded Real Estate Exposure

REITs are publicly traded companies that own income-producing real estate. They're liquid, accessible to any investor, and required to distribute at least 90% of taxable income as dividends. The tradeoff is that REITs trade like stocks - they move with market sentiment and interest rate expectations, often independently of the underlying property values. During equity market downturns, publicly traded REITs frequently sell off alongside stocks, limiting the diversification benefit you might expect from real estate.

Real Estate Syndications: Passive Equity in Institutional-Quality Properties

A real estate syndication pools capital from multiple investors to acquire a single property, typically a commercial asset like an apartment building. Accredited investors contribute equity alongside other LPs, the operator (the GP) manages the asset, and returns are distributed as the property generates income and eventually sells. Syndications are illiquid - you're typically committed for a 5-year hold - but they offer access to larger, institutional-quality assets with professional management, without the operational burden of direct ownership.

Red Brick Equity focuses on Midwest multifamily syndications with a $25,000 minimum investment. The target return profile is a 15-20% IRR and approximately 2x equity multiple over a 5-year hold, driven by NOI growth through value-add execution rather than cap rate speculation.

Private Credit and Private Equity for Accredited Investors

For accredited investors with larger capital bases, private credit and private equity offer return profiles that differ from public markets. Private credit funds lend to businesses that can't or don't want to access public debt markets, and they typically offer floating-rate income at a premium over comparable public bonds. Private equity funds acquire and operate businesses over multi-year hold periods, targeting returns well above public markets but with corresponding illiquidity and complexity.

These asset classes have historically been reserved for institutional investors and ultra-high-net-worth individuals. Access has broadened in recent years through fund platforms and secondary markets, but they typically require larger minimums than real estate syndications and carry longer lock-up periods.

Commodities and Real Assets as Long-Term Inflation Hedges

Gold, oil, agricultural commodities, and other real assets have served as inflation hedges over long periods. They tend to perform well when inflation is high and equities struggle. The challenge with direct commodity ownership is that commodities don't generate income - gold sitting in a vault produces nothing. Commodity exposure through ETFs or funds adds diversification but can be volatile, and the relationship between commodities and inflation isn't always tight over shorter time horizons.

Asset Class	Return Driver	Liquidity	Income?	Key Risk
Stocks	Earnings growth, sentiment	Daily	Dividends (variable)	Volatility, correlation in crashes
Bonds	Interest payments	Daily	Yes (fixed)	Rate risk, credit risk
Direct real estate	Rent + appreciation	Very low	Yes (rent)	Operational burden, illiquidity
REITs	Rent + market pricing	Daily	Yes (required 90%)	Trades like a stock
Real estate syndications	NOI growth + exit	None (5-year hold)	Yes (quarterly)	Illiquidity, operator risk
Private credit	Interest income	Low	Yes (floating)	Credit risk, limited access
Commodities	Supply/demand, inflation	Daily (ETF)	No	Volatility, no income

How to Build a Portfolio Beyond Stocks: Allocation Strategy for Individual Investors

There's no universal right answer for how much to allocate outside equities. A common starting point is to think in buckets: liquid assets (stocks, bonds, cash) for near-term needs and market participation; and illiquid alternatives (real estate, private equity) for the portion of your capital you don't need access to for 5-10 years. The illiquidity premium - the extra return you earn for giving up daily liquidity - can meaningfully compound over time if you don't need to sell.

Accredited investors with significant investable assets often allocate 10-20% or more of their portfolio to alternatives. The right number depends on your income needs, tax situation, liquidity requirements, and risk tolerance. If you've never invested outside of stocks, starting with a small allocation to a single real estate deal can be a practical way to learn how private assets work before committing more capital. For a clear picture of what that experience involves, see our guide on what to expect in your first year as a passive real estate investor.

Frequently Asked Questions: Investing Outside of Stocks

Do I Need to Be an Accredited Investor to Access Alternative Investments?

For many alternatives - including real estate syndications, private equity funds, and private credit - yes. The SEC defines an accredited investor as someone with net worth over $1 million (excluding primary residence) or income over $200,000 annually ($300,000 joint). Some platforms offer non-accredited investors access to real estate through registered structures, but the best opportunities typically require accredited status.

Are Alternative Investments Riskier Than Stocks?

It depends on the risk you're measuring. Illiquid alternatives have lower daily price volatility than stocks because they don't trade continuously. That doesn't mean they're safer - they carry operational risk, manager risk, and the risk that you can't sell when you need cash. Diversifying into alternatives changes your risk profile; whether it increases or decreases your overall risk depends on what you own and how much of your portfolio it represents.

How Do Real Estate Syndications Compare to REITs for Individual Investors?

REITs offer liquidity and simplicity - you can buy and sell them like a stock. Syndications offer direct ownership of a specific asset, better tax treatment (depreciation passes through to you), and typically higher return targets. The tradeoff is a multi-year lockup and a higher minimum investment. Investors who want real estate exposure without giving up liquidity often start with REITs; those who have capital to commit for 5 years and want the full economics of ownership typically prefer syndications.

What Is the Minimum Investment to Start Investing Outside of Stocks?

It depends on the asset class. REITs can be bought for the price of one share. Real estate syndications typically start at $25,000-$50,000. Private equity funds often have minimums of $250,000 or more. Red Brick Equity accepts investments starting at $25,000, designed to make institutional multifamily real estate accessible to investors who are new to private placements.

What Is the Tax Treatment of Alternative Investments vs. Stocks?

Stocks held over a year benefit from long-term capital gains rates. Real estate syndications offer depreciation deductions that often produce a K-1 paper loss even when the property is generating cash - a tax efficiency that stocks don't provide. Commodities are typically taxed at a blend of short and long-term rates. Private credit income is ordinary income. The tax implications of any alternative investment should be reviewed with your accountant before investing.

Where Should I Invest Outside of Stocks?

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