7 things I don’t own in my portfolio
 [February 26, 2025]
As someone who writes about building portfolios for a living, I research
many types of investments, from tried-and-true core holdings to more
esoteric corners of the investment world. But what do I actually do with
my own money? Here are seven investment types that I’ve decided to take
a pass on.
Actively managed funds
I’m fairly skeptical about the value of active management in general.
Keeping the bulk of my assets passively managed also simplifies
portfolio management. I can focus my time on making sure my overall
asset mix is appropriate for my financial situation and goals instead of
keeping track of whether an active manager is still adding value.
Real estate investment trusts
There are two key reasons why I’m skeptical about real estate:
diversification and idiosyncratic risk.
On the diversification side, I think the value of real estate as a
portfolio diversifier has often been overstated. And there are a lot of
risks specific to real estate investing. I don’t have any specialized
industry knowledge that would give me a unique capability to mitigate
these risks.
Sector funds
By the time people start getting intrigued by the growth prospects for a
given sector or industry, much of the potential is already priced in to
valuations.
What’s more, sector funds have been incredibly difficult for investors
to effectively use in a portfolio. Morningstar recently found that
dollar-weighted returns for sector funds over the 10-year period through
2024 trailed time-weighted returns by nearly 3 percentage points per
year. With a track record like that, I’m staying far, far away.
Alternative investments
Alternative investments are designed to offer something fundamentally
different from mainstream asset classes.
But their track record is mixed at best. Some alternative-fund
categories were successful during 2022’s bear market. But over longer
periods, they’ve generally disappointed.
Nontraditional equity funds have fared a bit better. But they’re still
well behind the return of a traditional 60/40 mix of large-cap stocks
and investment-grade bonds.
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 I bonds
I don’t have a philosophical objection to I bonds. They’re one of
the best ways to hedge against inflation, and they also boast tax
benefits.
Why haven’t I bought them? The reasons are pretty mundane: purchase
limits and other practical drawbacks. Individual investors can only
purchase $10,000 worth of I bonds per year, making it tough to amass
a big enough position to make a significant difference in an
already-established portfolio. And I bonds can be bought and sold
only through the Treasury Direct website.
High-yield bonds
High-yield bonds offer a yield premium in exchange for their
additional credit risk. They’ve also generated above-average returns
over time.
But they also have some drawbacks. Because of their added levels of
credit risk, they tend to be more equitylike than bond like. That
makes them less useful as portfolio diversifiers than other
fixed-income securities.
Overall, high-yield bonds don’t look that compelling to me. My main
goal for fixed-income holdings is to offset the risk of my equity
assets, so I’ve given junk bonds a pass.
Gold
Gold has a relatively solid record as a safe haven during periods of
market crisis and also sports a low correlation with most major
asset classes. But I haven’t been impressed enough to add it to my
portfolio.
Fundamentally, gold isn’t a growth asset: Its value typically
remains stable in inflation-adjusted terms over long-term market
cycles. My primary investment goal is long-term growth, and I have
enough cash and shorter-term bond holdings to add ballast during
market drawdowns.
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