Explore How Alternative Assets Behave During Market Crashes and Whether They Can Provide Stability or Outperform Stocks

During a market crash, stock volatility can send investors searching for safer or more stable options. Alternative assets like real estate, gold, private equity, merchant cash advances (MCAs), and cryptocurrencies can be considered as potential hedges against economic turbulence. But can alternative assets outperform stocks?

This article looks at how these asset classes have performed in past downturns and highlights their pros and cons.

How Do Alternative Assets Behave During Market Crashes?

Alternative assets react differently during market crashes, each offering unique risks and rewards:

• Gold

Often seen as a safe haven, gold typically holds or gains value during market downturns as investors seek stability. However, returns can vary depending on the severity of the crisis and overall market sentiment.

• Real Estate

Real estate resilience depends on market cycles. While property values may dip during a crash, steady rental income can provide stability. 

That said, highly leveraged properties or speculative investments can be more vulnerable.

• Private Equity and Venture Capital

These assets focus on long-term growth, which can help weather short-term volatility. However, their illiquidity can be tricky during economic uncertainty, as selling quickly may not be an option.

• Merchant Cash Advances (MCAs)

Crashes can increase the risk of defaults as struggling businesses fail. On the other hand, downturns may also filter out weaker applicants, leaving higher-quality merchants in the MCA pool, potentially stabilizing returns. You can learn more here.

• Cryptocurrencies

Highly volatile and speculative, crypto can swing dramatically during downturns. For investors with high risk tolerance, crypto could act as a hedge or an opportunity for significant returns—but with equal potential for large losses.

Historical Performance Comparison: Stocks vs. Alternatives

In downturns like 2008 and 2020, alternative assets often performed differently from stocks. Gold, for example, held strong during the 2008 crisis, while stocks saw steep declines.

Real estate showed mixed results—some markets stayed stable, but areas heavily reliant on debt struggled as values dropped and loans became harder to manage. Cryptocurrencies, still emerging in 2020, were highly volatile. 

While alternatives sometimes outshine stocks in tough times, their performance varies, making a diversified approach important.

Advantages of Alternative Assets in Downturns

Alternative assets can bring a few key benefits during market crashes. They often have a low correlation with stocks, so their performance isn’t as tied to market swings. Certain assets, like real estate, can offer you steady rental income, while others, like private equity, may pay dividends.

Plus, certain assets like collectibles can grow in value over time, even during tough economic periods, offering a chance for growth when traditional markets are down.

Risks and Limitations of Alternatives During Crashes

Illiquidity can be an issue for assets like real estate or private equity, making it harder to sell quickly when needed. 

Valuing certain assets during economic uncertainty can also be tricky, with fluctuating markets adding complexity.

What Can I Do Now?

Alternative assets can complement stocks by offering diversification and potential stability during market crashes, but they’re not a guaranteed replacement. Take time to evaluate your portfolio and consult with a financial professional to determine if alternatives fit into your own strategy.

For more insights, explore our quiz on building a diversified portfolio with alternative assets to explore how these investments can work alongside traditional stocks.