Gold can benefit portfolios diversified with alternatives
News Arnulf Hinkel, financial journalist – 11.08.2025
The allocation of gold in an investor portfolio primarily composed of stocks and bonds positively impacts risk-adjusted returns. This has been proven time and again, by studies such as the Mercer study, which is conducted regularly and was last published in 2024. A recent World Gold Council study examines extensively diversified portfolios with a broad mix of so-called alternative investments, in addition to stock indices and bonds from both industrialised and emerging countries.
Alternative investments: positive returns, higher risk
Investments outside the capital markets for stocks, bonds or overnight money deposits – so-called alternatives – are non-traditional forms of investment. They can offer above-average or, in some cases, guaranteed return opportunities, but often also require a longer capital commitment and bear a higher risk. They include private equity, private debt, hedge funds, infrastructure investments, REITs and, of course, venture capital financing instruments. As the correlations between these forms of investment and the stock and bond markets are extremely low, alternatives also provide diversification opportunities to institutional and private investors. In addition, they can have a positive impact on the risk structure of a portfolio. However, according to the study, the behaviour of private equity and traditional capital markets has converged in recent years.
Gold improves both risk-adjusted returns and volatility
Gold and alternatives are only weakly correlated and tend to be complementary. The precious metal can therefore further optimise portfolio return, as the latest World Gold Council study shows. Therefore, an 8 per cent gold allocation to a stock/bond/alternative-based portfolio led to a risk-adjusted return of 0.54 percent instead of 0.48 (without gold) over a period of five years, 0.94 instead of 0.93 percent over a 15-year investment period, and 0.61 instead of 0.56 over a 20-year period. Volatility also decreased from a range of between 11.7 and 12.1 percent to 10.8 to 11.3 percent.
