As a strategist who writes about how to build portfolios, I work on a wide range of investment types, from classic core assets to niche sectors. But what do I choose when investing? Here are seven types of investments that I would avoid.

Actively managed funds

I've always been skeptical about the value of active management. I have simplified the portfolio management process by allocating my main assets to passively managed products. This allows me to focus on how well my overall asset allocation fits my personal financial situation and goals, rather than having to worry about tracking whether actively managed funds are still creating added value.

Real estate investment trusts

My reservations about real estate investment stem from two main considerations: diversification and special risks.

In terms of diversification, I think the value of real estate as a tool for portfolio diversification is often overstated. And there are a number of specific risks associated with real estate investment. These risks are difficult for me, a layman with little expertise, to manage.

Industry-themed funds

When the growth prospects of a sector or industry start to attract popularity, its valuation is often overdrawn for future growth.

More critically, it is difficult for investors to effectively leverage the sector-themed funds in their portfolios. Morningstar's latest research found that the fund-weighted returns of industry-themed funds lagged behind the time-weighted returns by nearly 3 percentage points each year in the decade to 0. For such performances, I choose to stay away.

Alternative Investments

Alternative investments are supposed to offer a very different return profile than traditional assets.

But its history has been mixed at best. While alternative investment funds have performed well in the 2022-year bear market, their overall performance has been disappointing over the long term.

Non-traditional equity funds have a slight edge, but their returns are still significantly behind those of traditional 64 portfolios of large-cap stocks and investment-grade bonds.

Series I Bonds

In theory, I'm not against Series I bonds. This kind of anti-inflation weapon is perfect with tax advantages.

But why didn't I invest in these assets? The reason is simple: the subscription limit and other shortcomings. Individual investors can only subscribe to Series I bonds worth $000,0 per year, which makes it difficult for investors to accumulate a sufficiently large position in an already established portfolio. Series I bonds can only be bought and sold through the Treasury Direct website.

High-yield bonds

High-yield bonds offer an attractive yield premium at the cost of additional credit risk. Over time, its yields have been above average.

But there are some drawbacks to this type of investment. Due to their higher credit risk, they are more like stocks than bonds in nature. This makes it difficult for them to function as portfolio diversifiers relative to other fixed income securities.

Overall, high-yield bonds don't appeal much to me. My main objective in holding fixed income products is to offset the risk of equity assets, so I exclude junk bonds.

gold

Gold has shown excellent safe-haven properties in times of market crisis and has low correlation with most major assets. But gold wasn't enough to impress me and become one of my investments.

Fundamentally, gold is not a growth asset: its value has remained largely stable after adjusting for inflation during long-term market cycles. My main investment goal is to pursue long-term growth, and I hold enough cash and short-term bonds to provide stability when the market is down.

This article was provided to The Associated Press by Morningstar.

The author of this article, Amy Arnault, is a portfolio manager at Morningstar. (Fortune Chinese Network)

Translator: Liu Jinlong

Examiner: Wang Hao