Direct Real Estate & Precious Metals
Overview
Investments in assets like real estate and precious metals can add another layer of diversification to a portfolio. This chapter looks at how each one works, along with the main benefits and risks.
Real estate
We’ve already covered gaining real estate exposure through real estate investment trusts (REITs). With direct real estate investing, you own the property itself, which changes both the potential rewards and the risks.
Benefits of direct ownership
| Benefit | Detail (as stated) |
|---|---|
| Full economic benefit | “When you directly own real estate, you keep the full economic benefit from renting the property or selling it later, rather than sharing returns through a pooled investment.” |
| Tax deductions | “Certain ownership expenses (for example, maintenance and renovation costs) may be tax deductible if the property is rented out or treated as an investment property.” |
| Hedge against market risk | “With the exception of the Great Recession, the real estate market has tended to hold its value during periods of stock market volatility.” |
| Hedge against inflation risk | “Over long periods, economic data also suggests that non-commercial real estate properties tend to grow faster than the rate of inflation.” |
Real estate tends to act as a hedge against both market and inflation risk.
⚠️ Risks of direct ownership
| Risk factor | Detail (as stated) |
|---|---|
| Liquidity | ⚠️ “Liquidity risk is a major concern.” Selling a property typically involves real estate agents, title companies, and inspection specialists, which can require significant time and money. “Closing a sale is rarely quick and often takes weeks or months.” |
| Transaction complexity | “Contract negotiations between the buyer and seller can also delay or complicate the transaction.” Buying or selling real estate can be time-consuming and operationally complex. |
| Alternative | “If you want real estate exposure without these burdens, REITs can be a suitable alternative.” |
Precious metals
Investors can diversify their portfolios with direct exposure to precious metals, which include:
- Gold
- Silver
- Platinum
- Palladium
🔑 Correlations (memorize)
| Relationship | Correlation | What happens |
|---|---|---|
| Market returns vs. precious metal valuation | Negative correlation | “When the market declines, precious metal prices tend to rise.” |
| Inflation rates vs. precious metal valuation | Positive correlation | “When inflation rises, precious metal prices tend to rise as well.” |
Direct investments in these commodities tend to act as hedges against both market and inflation risk.
⚠️ Risks of precious metals
| Risk | Detail (as stated) |
|---|---|
| Large fees / custody & storage | “Precious metals can involve large fees, including insurance, shipping, or maintenance fees (if a third party holds the metal).” |
| Fraud | ⚠️ “There are also numerous instances of investors being duped and defrauded in schemes involving these investments.” |
Comparison — real estate vs. precious metals
| Factor | Real estate (direct) | Precious metals (direct) |
|---|---|---|
| Hedge against market risk | Yes (exception: the Great Recession) | Yes — negative correlation with market returns |
| Hedge against inflation risk | Yes — non-commercial property tends to grow faster than inflation | Yes — positive correlation with inflation rates |
| Liquidity | ⚠️ Liquidity risk is a major concern; sales take weeks or months | (Not stated in this chapter) |
| Custody / storage costs | Maintenance and renovation costs (may be tax deductible if rented/investment property) | Insurance, shipping, or maintenance fees if a third party holds the metal |
| Tax treatment | Certain ownership expenses may be tax deductible if rented out or treated as an investment property | (Not stated in this chapter) |
| Main other risk | Operational complexity — agents, title companies, inspectors, contract negotiations | Fraud and large fees |
| Pooled alternative | REITs | (Not stated in this chapter) |
Key points
Real estate investments
- Tend to act as a hedge against market and inflation risk
- Numerous risks related to direct ownership
Precious metals
- Hedge against market and inflation risk
- Could be subject to large fees or fraud
Sources
Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | REITs investor bulletin — types, listing, distributions | SEC |
| 2 | Customer advisories — precious metals, commodity and digital-asset fraud | CFTC |
| 3 | Pub 550 — investment income, wash sales, muni interest, OID | IRS |
| 4 | Achievable Series 65 — chapter 1.7.1 | Achievable (course text) |
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