REITs and Alternatives

REITs (Real Estate Investment Trusts)

REITs are companies that own and operate income-producing real estate — apartment buildings, office towers, warehouses, hospitals, cell towers, data centers. By law, they must distribute at least 90% of their taxable income to shareholders as dividends, which makes them income-heavy investments.

Advantages:

• Liquidity. Traded like stocks; unlike physical property.
• Diversification across properties and geographies.
• Professional management.

Drawbacks:

• REIT dividends are mostly taxed as ordinary income, not qualified dividends. Best held in tax-advantaged accounts.
• Correlation with stocks during crises is higher than people expect — REITs fell hard in 2008 and again in 2020.
• Your house is already real-estate exposure; many investors are overweighted already.

Broad REIT index funds typically hold 150+ REITs. Expense ratios under 0.15% are available.

Commodities

Commodities include oil, natural gas, precious metals, agricultural products. They're volatile, produce no cash flows (you hold them hoping for price appreciation), and historically have delivered low long-run real returns.

One defensible use: gold or broad commodity indexes as an inflation hedge. Commodities tend to rise when inflation surprises to the upside. But the allocation should be small (5% or less) and recognized as a volatility play, not a growth engine.

Cryptocurrency

Bitcoin, Ethereum, and thousands of other digital assets. Extremely volatile — 70–80% drawdowns are common. No cash flows. Price driven entirely by sentiment, adoption narratives, and macro liquidity conditions.

Crypto may belong in some portfolios as a small speculative allocation (1–5%), sized so that total loss wouldn't affect your plan. It does not belong as a core retirement asset. The asymmetric-upside case some investors make is genuine, but so is the asymmetric-downside reality.

Private equity and venture capital

Investments in companies not traded on public markets. Historical returns have been strong, but:

• Access is typically restricted to accredited investors with high minimums.
• Liquidity is poor — capital is locked up for 7–10+ years.
• Reported returns are often overstated because illiquid assets aren't marked to market in real-time.
• Recent academic research suggests the "premium" over public equity is smaller than commonly believed after fees.

For most retail investors, private equity is either unavailable or not worth the illiquidity. Modern "40-Act" funds and interval funds provide more accessible versions, but the structural issues remain.

Hedge funds

A broad category of actively managed funds using leverage, derivatives, short-selling, and other strategies. High fees (historically 2% management + 20% of profits). Long-run returns net of fees have been mediocre — the average hedge fund has underperformed simple index portfolios for the past two decades.

The default position: you probably don't need these

Three-fund portfolios of U.S. stocks, international stocks, and bonds have historically delivered returns comparable to or better than portfolios with significant alternative allocations, at much lower cost and complexity. Unless you have a specific thesis for why you need exposure to a particular alternative, skipping them is a defensible choice.

A modest REIT allocation (5–10%) is the most defensible exception. Everything else is optional.

How Horizons uses this

Horizons lets you add any asset with a strategy and expected return. REITs are typically modeled as "moderate" strategy. Commodities and crypto would map to "aggressive" but with much wider volatility — worth overriding the default strategy returns with your own assumptions if you hold meaningful amounts.