Crypto, gold and more: Evaluating the world beyond the core

Christine Kashkari: Crypto. Gold These days, nearly every investor has an opinion on them, and nearly every commentator has an angle.

But true clarity on whether these and other investments beyond traditional stocks and bonds belong in your portfolio is harder to come by. The answer, it turns out, depends on who's asking.

Welcome to Season 2 of Better Vantage by Vanguard, a podcast series hosted by custom content from WSJ and Vanguard. I'm your host, Christine Kashkari, editorial director at WSJ Custom Programming.

And with me is my co-host in this series and our resident expert, Joe Davis, global chief economist at Vanguard, Joe.

Joe Davis: Great to be back, Christine.

Christine: And today we are joined by Roger Aliaga-Diaz, global head of portfolio construction and chief economist for the Americas at Vanguard, and Del Stafford, Vanguard's head of advice and wealth solutions.

Together, they're going to help us cut through the noise around non-traditional exposures. Roger, Del, thanks for being here.

Roger Aliaga-Diaz: Good to be here. Thanks for having us.

Del Stafford: Thanks. Excited to join the conversation.

Joe: If you're at Vanguard, if you're in the industry, if you're looking for someone to say, ‘"How do I think about some of these investments? What's the role in the portfolio? What are the assumptions I need to make, what are the risks I'm trying to mitigate?"

These are two individuals that I would look toward to give me perspective and thinking. I'm really excited today. Today’s about dispelling some myths, some misperceptions, also some of the hype around some of these investments.

Christine: Yeah, I'm just looking forward to sitting back and watching you all duke it out. But, when we talk about alternative investments, this isn't exactly new territory for Vanguard, though, not many people may be aware of that. But I think the reason that we're talking about it now is because of their potential inclusion in retirement plans and the fact that the way that you can access some of these assets is evolving. So, how is your approach evolving with these developments?

Roger: It's true that we've been talking about alternatives in the sense of, for example, things like private assets. There are other income-generating assets that are not necessarily following the more traditional bucket, if you will, of stocks and bonds, that definitely have a place in a portfolio, especially in a gold-based portfolio where it’s retirement or college savings.

And then there is another set of alternative assets that are being more talked about nowadays,  we've been looking and thinking about it over the years at Vanguard, but we haven't made them available in part of the portfolio.

So very excited to discuss that.

To me, one thing I'd like to think about in these assets is whether they are income-generating or not, because these labels—alternatives, core, non-core , are a little bit fluid, and to me the big set of assets or categories of assets are assets that create income. Investors kind of receive a cash flow, stocks, bonds, but it could be direct holdings, could be real estate. And then you have these assets that are non-income-generating assets that you can hold, for example, commodities or could be maybe art collections. Some of the assets could be very important for the economy like metals and other important commodities, but the thing there is that the values determined by supply and demand, they don't create an income. So now, how you think about those in the portfolio is: Are they going to create wealth for me because the price in the future will be higher than what it is today?

Joe: What's your view, Del?

Del: When we think about alternatives, just simply, the S&P 500 has a market cap of $60–$70 trillion. You compare that—gold has a market cap of, call it $15 trillion, that's actually larger than the FTSE 100, which is the U.K. stock market. And so, when something gets that large, then it becomes a question of how: Are they too big to ignore and are they more accessible now than they were previously? Over time, you would expect that something that is non-core today may actually be considered core theoretically in the future. And that could happen just purely due to accessibility. We think of what ETFs have done in the industry to bring transparency and to bring assets that don't trade very frequently to exposing them now.

The same is happening in private market space now. So, with the advent of evergreen funds, I think at the end of 2025, evergreen funds represent about $500 billion. That number was $250 billion maybe five years ago.* So now they're more accessible. The retail client or a wealth client has that access. So we've gone from exclusivity from a private markets perspective to one that's more accessibility-driven.

Roger: The other example I wanted to share for investors outside the U.S. or even particularly investor, for example, in emerging markets some assets that you will consider non-core like a cash position and a hard currency in U.S. dollars, which here will be crazy to say, "I'm holding a big part of my portfolio, just sitting in cash." In some countries where there is a lot of current currency risk and macro risk, actually are a strong position on currency could actually be your safe asset almost. So all these things shift over time and across regions as well.

Joe: And then not to get personal, but like Argentina, where you’re from.

Roger: Right, I’m talking from experience here. So the idea of having money under your mattress is not crazy over there, because…

Joe:  Well that’ll  get to what we're talking about in the portfolio. So maybe we'll go to specific…, because now I'm thinking, if I'm a U.S. investor, gold sometimes or comes into that conversation potentially as the U.S. dollar could lose value. How would you attack from a portfolio construction perspective? How do you attack about from advice perspective?

Roger: There are some truths and some misconceptions about gold. And it's a question that we've been actually talking to clients for years. There is a store-of-value type of role of gold, which I completely agree. If you see over 100 years of data, you'll see that the return for gold has been keeping track with inflation, even sometimes even ahead. Of course, it's very time dependent. There are periods in which if you're in the 70s, you get like 20% per year. But even the last 14–15 years, as much as we are looking at the gold prices today, the return since 2013 is 1.1%. So, I think gold over time on an average keeps track with inflation, preserves value. And that certainly is a role that sometimes people think. Gold to me is a hedge against more extreme scenarios, not the regular garden-variety inflation shocks. As long as the U.S. dollar continues to be the international reserve currency, the flight to safety, the risk of events go to the dollar. The question is, Joe, you were saying before is: is dollar debasement, currency debasement, fiscal crisis. So I think when people think about gold, they think a store of value , the historical and remember, gold was the reserve currency asset before the dollar was. So the people say, "Okay, the dollar is not there and there are no other reserve currencies that are ready to take the stand like the euro or the renminbi," then people go back to the gold metal. And that's the type of thinking I'm sure investors are thinking when they bring the gold position portfolio.

Del: So, we do have clients from time to time who've either made a gold purchase or are considering a gold purchase, and when they do, they ask us and get context on how they should consider that relative to how we might be advising them already.

So, just a few stats as it relates to gold—correlation historically is about 0.13 to the S&P 500—really pretty low. Not as low as bonds, but we know there's some diversification benefit.

At the same time, we know that there's more volatility, certainly more volatility than bonds. So, that interplay between the correlation and the volatility, that allows us to then size how much.

And so, if you want to have gold for, I'll call it a tail risk event, we can help clients think through what does that look like. And now we just have to figure out how best to approach that and bring it into an existing portfolio.

Christine: In a nutshell, Del, before we move on to our other alternative assets, which investors should own gold?

Del: In the way that we would consider this, it's going to be those that first have a full understanding of where the intended purposes for actually holding the exposure. That's first.

Second is going to be those that have a bit more equity in their portfolios or their asset allocation allows for them to own a little bit more, because we have to source it from somewhere. And so, if you have an investor where the majority of their assets are in fixed income, and we have to sell fixed income to buy it, now we're giving up income, we're giving up some level of stability. If we sell the equity, they don't have a lot of equity to begin with. So then we're giving out the economic growth. So the profile of a client would be someone that has more exposure to equities. We can be more thoughtful of how we're sourcing it. And then also, the purpose for buying the gold doesn't play out. You have enough exposure in those other assets, that it's not as detrimental.

Christine: So, let's transition from gold to digital gold. So, when we talk about crypto, a lot of people just think of it as one bucket, but it's actually different things with different implications for your investments.

Can you talk us through that?

Roger: The most common idea about crypto is kind of Bitcoin. With the cryptocurrencies that are meant to be currencies — are used for transactions.

The value of the currency fluctuates a lot up and down because ultimately it depends on the demands and the use and the availability. So, what is not happening, whether or not Bitcoin is going to end up being an actual currency or not, is that today the behavior is like a commodity.

The same with gold.  You could ask where gold is going to be—a currency or maybe was a currency in the past. Commodity-based currencies, the Bitcoin and crypto currencies, in that sense, they are commodity-based type of currencies from an investor perspective, which is what we really care about here is as opposed to monetary policy, is about how they fit in the portfolio.

Can they generate return and what are the views about the future demand for these currencies where it's kind of upside from that return perspective?

Del: We could widen the aperture and really bring in just tokenization in general. Just do Stablecoin, it's backed by underlying assets. Most of the assets today that are backing those are U.S. Treasuries. And who knows in the future, they may actually pay an income. So then, it feels more like it's just a different wrapper for an underlying investment. So, we've seen it in mutual fund innovation, we've seen the ETF innovation, and tokenization just provides another wrap or for underlying investments.

Joe: Let me go back to Bitcoin. So let's say there's a listener out there, hypothetical or otherwise, they got a 10% hold of their portfolio, not judging it. What are the assumptions that that's a viable position of portfolio?

Roger: I think, Joe, you're talking about the right things in terms of risk and return.

Basically, the hypothesis there has to be the expected return. So, the future price, which, in this case, because there is no income generation here is really about where the price is going to be in the future.

Whatever the investment horizon is will compensate or reward you for the risk you're taking. Just for context, the volatility of Bitcoin right now is in the 70% to 80% annualized correlation, which is four times the stock market, the diversified stock position.**

Joe: So now it's high octane.

Roger: High octane.

Of course, the return that we have seen, even after the fall, if you have held Bitcoin for the last 10 years, it will have paid off, no question. Right now, the question I would tell that investor to ask themselves is that is basically, do you think that will continue? So, we were discussing before with gold, there has to be a view, a conviction on what drives the value of that currency or the cryptocurrency in this case forward and make sure that that's kind of proportional to the risk you're taking.

Del: I would say if a client or a potential client approached us and said they had 10% in Bitcoin, I think there's two "we believes." And the first we believe is that it feels a little bit like portfolio insurance, but not really insurance. It's what if this happens, I feel as if I might miss out. It's what if. I've seen historically, it's usually based in history, I've seen this historical price appreciation. What if it continues? Then if you're answering the question, what if it continues, 10% might seem like a lot. So then, we then could have a discussion with them around, "Well, how do you size that?" We have to think about its correlation, and we then have to think about the risk. You said 70%–80% is the volatility correlation to equities. It's positively correlated. So, as equity markets go up, Bitcoin goes up, the equity markets go down, there's some positive interaction between those two. That leads me to believe that 10%, depending on the we believe and the why, it seems like it might be a lot. So, there's ways for us to size that appropriately in a way that you're not giving up again, too much income generation, too much economic exposure relative to buying something for what you believe may happen in the future and not missing.

Joe: I don't have 10%, but I also don't know what the fair value is.

Del: Right, because it’s not value based.

Joe: It's not income based.

Roger: Now we're talking about if you have a personal view on where Bitcoin prices are going, we have a view too. We have drivers of that view. One is there are multiple cryptocurrencies. There's not one. So now you say, okay, if Bitcoin is going to be used as a currency, what about all the other cryptocurrencies? And there is currency competition there.

Joe: And the winner takes all that.

Del: And Ethereum has more utility than Bitcoin.

Roger: Exactly, because the ether is the currency that works in the platform, and that has a real source of demand. So that's one thing to keep in mind as you're thinking, okay, I may think that the comparison go up, but what about all the other 100 cryptocurrencies out there. And how the competition plays out.

And the second thing I cannot stop thinking when I think about the future of cryptocurrencies is if they are going to be actually used as currencies, we need much more of them, which will lower the price.

Joe: I hear some say, "No, supply is fixed, demands going up. And so the fair value is going to have to go up." You're saying it's the opposite.

Roger: So that would be if it becomes an actual currency.

Joe: Maybe we switch gears now and talk about private assets, private markets.

Christine: So, we know private credit, private equity, what they are. I'm more interested in the why…Why are they so just controversial right now?

Del: Today, and over the course of the past, call it three to five years, it's become more about accessibility. Yes, the regulatory environment has made it easier for the mainstream to access these products. Beforehand, there was much more exclusive. Now it's much more accessible. There's more eyeballs on it.

The other thing that's changed as well is within this innovation have been liquidity parameters that were provided within private markets. The typical private markets portfolio that's not considered a quote unquote evergreen strategy, there's lockups up to nearly 10 to 14 years.

When you're in an evergreen type of a strategy, there is only certain periods through which liquidity can be accessed and that liquidity can be gated at times. That's where portfolio construction is even more important.

Roger: I would say that these program assets are complex assets. There is a little bit of opacity in the sense that there is no mark to market. You cannot see the prices, you don't understand the volatility.

So traditionally, more sophisticated institutional investors have been doing a lot of work and with big teams they're descending on this understanding exactly what the risk are and incorporating the portfolio. If you're an endowment fund, you have infinite investment horizons, also if you are saving for college you may not.

So that has been the traditional use and the reason why things are turning is because again, your point, these new innovations with evergreen and the ability to subscribe and get redemptions in a more regular way.

Joe: And strong returns.

Roger: So, accessing those strong returns, but in a more fluid way. And that's where the question has been asked. Do they belong in retail portfolios?

Del: To your point, there's 9,000 U.S. global public equity companies. So, our piece of research that is close to 215,000 private-backed companies, venture and growth equity-backed companies.***

So, there is a real economic gap that exists between just client exposure. Vanguard's been known for indexing for quite some time. So just on that alone, the majority of those are small-cap. Those 9,000 companies far exceed in market cap those 217, but it puts real numbers of what the investors are missing and those could be some of the high-growth companies that will become a part of those 9,000 public equity companies down the road.

Joe: I hear some institutions, you have the consultant community, you should have 20%, 30% in private assets. Is that appropriate number?

Roger: You won't like my answer...

Joe: No, it's a leading question. It's a leading question because I think we have to be more thoughtful. That doesn't mean one would not have an allocation.

Roger: Absolutely. 100%. I think a misconception out there is that you size a bucket, say "I'm going to put 30% of private asset in my portfolio," and then you go and try to find a manager to fill into the bucket. But the reason why I think that's wrong is because how much it makes sense, it really depends on the particular risk characteristics of that private manager.

So private assets are no different than public active in the sense that you're accessing them through a specific manager. You're now exposed to active risk. Is that manager going to outperform or underperform? If it is, someone underperforms, obviously my allocation should be zero. I don't know that example. What's the active risk; there is a liquidity. How much ability to withstand illiquidity events do I have especially as a retail investor?

Del: If you look at the average retail wealth investor today, it's somewhere between 2% and 5% of an allocation to private markets, somewhere between 5% and 10% on the upper end. The environment's just not there yet, largely because the accessibility for the traditional wealth investor isn't there yet. You referenced it by the ultra-high-net worth that of buying those traditional private structures, where they are comfortable and they have the liquidity to hold assets in a lockup that’s 10 to 14 years. That's a very different profile of client. And in that instance, the traditional endowment model had a much higher weighting to that where it was basically private markets and index. And there it was north of 30% or 40%. That is not the case for the wealth investor.

Joe: We covered gold, crypto, core, non-core, whatever that is, importantly private assets.

So, Christine, we’ve covered a lot of ground.

Christine: Yeah, absolutely.

And Del, Roger, has been so fun having you on set today.

What is your takeaway if you have one?

Roger: From my side, it's okay to think outside the box a little bit with these new investments and these expanding set of investments. Just keep the risk mindset and also be willing to kind of change your convictions, your point of view to make sure you cover the full set of facts as you invest in this.

Del: So, I think we've covered, as you said, Joe, we've covered a lot of ground and I think there's some key things that have come through. Both on how to think about underlying asset classes and also how those asset classes may play a role in a client portfolio.

And as I approach this as an individual and also in the investment methodology and the advice that we're delivering, these exposures are ingredients, and it's a recipe. We need to make sure that whatever ingredient we include, we think about how it is additive to the overall recipe that we're ultimately making. So, it's great to have a discussion around them episodically or individually. But at the end of the day, it's really about the recipe, how we're including it. Investors should be thinking about it in this very same way. There may be an acute reason why you want to buy it, but at the same time, you need to understand how that fits into the overall recipe of your goals and your plans.

Christine: Roger, Del, it has been such a delight. Thank you for being here with us.

Roger: Great to be here.

Christine: And thank you for joining us for another episode of Better Vantage by Vanguard. And if you haven't already, please subscribe or recommend us to your friends.

If you enjoyed this episode and found it helpful, subscribe and share.

Notes:

*Source: Morningstar, 2025.

**Source: Bloomberg data, Vanguard Calculation, 2025.

*** Source: HarbourVest, citing Pitchbook, 2024.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

Past performance is not a guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

This content was created by Custom Content from WSJ, a unit of The Wall Street Journal Advertising Department.

Trading in cryptocurrency ETFs and mutual funds may involve significant risk and may not be suitable for all investors.

Private investments involve a high degree of risk and, therefore, should be undertaken only by prospective investors capable of evaluating and bearing the risks such an investment represents. Investors in private investments generally must meet certain minimum financial qualifications that may make it unsuitable for specific market participants.

Visit vanguard.com to obtain a Vanguard fund prospectus, or, if available, a summary prospectus, which contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.