When markets feel shaky or inflation dominates the headlines, it’s natural to start wondering whether you should branch out from the usual stocks and bonds. That’s when the term “uncorrelated assets” starts popping up. These are investments that tend to move independently from stocks and bonds, offering potential diversification benefits. But when it comes to retirement planning, is uncorrelated always better?
Let’s take a closer look at two commonly discussed uncorrelated asset classes: natural resources and commodities.
Natural Resources: Investing in the Land Itself
Natural resources are physical assets, such as timberland, farmland, water rights, or mineral royalties. These are tangible assets that often come with built-in inflation protection and low correlation to the stock market. For example, if you own farmland, your return is based on the productivity and value of that land, not whether the S&P 500 had a good year.
You don’t need to be a billionaire land baron to access these investments. You can:
- Invest in publicly traded REITs (Real Estate Investment Trusts) that focus on timber or agriculture.
- Use crowdfunding platforms to buy fractional shares of specific parcels of land.
- Explore interval funds that pool money to invest in assets such as water rights or forestry.
These types of assets tend to grow steadily over time. Timber, for example, can be harvested and regrown. Farmland can be leased out season after season. They also tend to keep pace with inflation, which is a plus when you’re thinking long-term.
Of course, nothing’s perfect. These investments can be harder to sell quickly. Some come with long holding periods, especially if you’re investing in private funds. And if you go the direct route, due diligence is key as you’ll want to understand what you’re buying and the risks that come with it.
Commodities: Real Assets, Real Volatility
Commodities are physical goods, encompassing both hard assets (such as gold, silver, and oil) and soft assets (like corn, wheat, and livestock). They’re often pitched as hedges against inflation and global economic uncertainty. When people worry about the value of the dollar or rising prices, gold in particular tends to get a lot of attention.
You can invest in commodities through:
- ETFs that track specific items, like gold, oil, or agriculture.
- Futures contracts or commodity trading advisors (CTAs) if you’re comfortable with more advanced strategies.
While commodities may sound like the perfect inflation hedge, the reality is messier. Over the long term, they tend to track inflation, but with higher volatility and lower returns than equities. That’s a tough tradeoff, especially when you’re relying on your portfolio for income in retirement. While commodities may provide temporary relief, such as during periods of inflation spikes, they’re unpredictable. Over the long term, many simply keep pace with inflation, but do so with significantly more volatility. In other words, you’re not getting much extra reward for the rollercoaster ride.
An alternative approach to gaining commodity exposure could be to invest in companies that utilize commodities to generate profits. Instead of buying oil directly, for example, you might invest in a well-run energy company that benefits when oil prices rise.
Who Might These Investments Be Right For?
If you’re still working, have a longer time horizon, or are looking to diversify a larger portfolio, there may be room for some of these assets. Natural resources, in particular, can add a layer of inflation protection and are generally less volatile than commodities. But if you’re in or near retirement and depending on your portfolio to provide steady income, it’s worth thinking carefully before adding these assets.
Chasing uncorrelated or “alternative” investments just because they sound different or more sophisticated isn’t necessarily the best move unless they fit into your larger plan. That’s exactly why we created our Workshop, Know Before You Invest: Understanding Alternative Investments. If you’ve ever felt unsure about how these assets might—or might not—fit into your retirement strategy, this session breaks it all down in plain English.
Bottom Line: Uncorrelated Doesn’t Always Mean Useful
Yes, these investments are different. And yes, they may not move in step with the broader market. But that doesn’t automatically make them a good fit, especially when your goal is reliable income, not speculation. Just because something is uncorrelated doesn’t mean it’s automatically a good fit for your retirement plan. Investments should offer a reliable return per unit of risk and play a clear role in the overall portfolio strategy. Exotic doesn’t always mean effective, especially for retirees who need a dependable income stream. For most retirees, effectiveness and dependability matter far more than novelty.
Want to Learn More? Listen to Ep. 182 of the Retire With Style Podcast.
