Beyond ETFs - My FIRE Investing

Beyond ETFs: Portfolio Diversification and Other Asset Classes

If you’ve read our guide on ETFs, you know that buying the “whole haystack” of stocks is smarter than trying to find the needle. That’s the first level of diversification: owning lots of different companies. But what happens when the entire stock market takes a nosedive? What happens in a year like 2008 or 2022 when almost every stock, good or bad, drops by 20% or more? If 100% of your money is in stocks, your net worth drops by 20% or more. That’s a scary ride, and it’s enough to make many people panic-sell and destroy their FIRE dreams.

This brings us to the “boss level” of investing: Diversification

True diversification isn’t just about owning different stocks. It’s about owning different types of things that behave differently under pressure. Today, we are going to look beyond the stock market at the other major “food groups” of the investing world.

The Goal: Building an All-Weather Portfolio

Think of your investment portfolio like building a house. If you build the entire house out of glass (Stocks), it will look spectacular when the sun is shining. But the first major hailstorm that comes along is going to shatter everything.

To build a house that lasts for 50 years (your retirement), you need different materials for different jobs:

Stocks: The glass windows (Great views, lots of light, fragile).
Bonds: The wooden frame (Absorbs shocks, keeps the structure standing).
Cash: The concrete foundation (Boring, solid, doesn’t move).
Gold: The storm shutters (You only need them when things get really ugly).

The goal of diversification is not to achieve the highest possible return. It is to achieve the highest return you can tolerate without panicking and selling when things get tough.

Stocks (Equities)

We’ve covered stocks and ETFs in detail before, so we’ll be brief here.

What they are: Ownership slices of businesses.
The Role in FIRE: Stocks are the engine of your portfolio. Over long periods (10+ years), they have historically provided the highest returns, powering your wealth above inflation.
The Risk: Extreme volatility. It is normal for the stock market to drop 10% every year or two, and 30%+ every decade or so.
The Emotional Cost: High anxiety during downturns.

FIRE Perspective: You almost certainly need stocks to reach FIRE because you need that growth. But unless you have nerves of steel, you probably shouldn’t hold only stocks.

Bonds (Fixed Income)

Bonds are usually the second most important part of a FIRE portfolio. They are misunderstood and often called “boring.” They are boring. That’s the point.

What they are: A loan. When you buy a bond, you are lending money to an entity (a government or a corporation). In exchange, they promise to pay you regular interest payments (usually twice a year) and return your original loan amount after a set period.
The Role in FIRE: Bonds are the airbags of your portfolio. When the stock market crashes, investors often flee to the safety of bonds, causing bond prices to stabilize or even rise. They provide steady income and reduce the overall rollercoaster ride of your portfolio.
The Vital Concept: Interest Rates vs. Bond Prices This confuses everyone, so let’s simplify it. Bond prices work on a teeter-totter with interest rates.
- If new interest rates go UP, existing bonds (which pay lower older rates) become less valuable. Their price goes DOWN.
- If new interest rates go DOWN, existing bonds (which pay higher older rates) become more valuable. Their price goes UP.

There are two main flavors of bonds you need to know:

A. Government Bonds (The “Risk-Free” Benchmark)

These are loans to stable governments (like the US Treasury or the Australian Government).

Risk: Extremely low. The US or Australian government can always print more money to pay you back. They won’t default.
Reward: Lower yields (interest payments) because they are so safe.
Role: The ultimate safe haven during economic disaster.

B. Corporate Bonds (The Middle Ground)

These are loans to companies (like Apple, Toyota, or Telstra).

Risk: Moderate. A company can go bankrupt and fail to pay you back.
Reward: Higher yields than government bonds to compensate you for that extra risk.
Role: A hybrid that offers better income than government debt but is still safer than stocks.

Cash & Savings Accounts — The Foundation

Wait, isn’t cash just… money not invested? Yes and no. In the investment world, “cash” refers to highly liquid, super-safe holdings.

What they are: Money in High-Yield Savings Accounts (HYSAs also called as High Income Savings Account or HISA in Australia and Canada), Term Deposits (TDs), or Certificates of Deposit (CDs).
The Role in FIRE: Liquidity and peace of mind. This is your Emergency Fund. It’s also the money you need to spend in the next 1–3 years (e.g., a house deposit). You do not gamble money you need soon in the stock market.
The Hidden Risk – Inflation. Cash feels safe because the number in your bank account never goes down. But the value of that money drops every year due to inflation.
- Example: If inflation is 4% and your savings account pays 2%, you are safely losing 2% of your purchasing power every year.
- Cash is safe in the short term

Gold & Other Precious Metals — The Insurance Policy

Gold is a polarising topic in finance. Some people think it is as useless as rocks; others think it’s the only real money. The truth is somewhere in the middle.

What it is: A physical commodity that has been recognized as valuable for thousands of years.
The Role in FIRE: Chaos insurance. Gold often (but not always) performs well when investors are terrified of everything else—wars, hyperinflation, or total currency collapse. It is a “store of value” outside of the financial system.
The Big Problem with Gold: Stocks pay dividends. Bonds pay interest. Savings accounts pay interest. Gold pays nothing. One gram of gold today will still be exactly one gram of gold in 100 years. It does not generate income, innovate, or grow. The only way you make money is if someone else is willing to pay more for it later (the “Greater Fool Theory”).

FIRE Perspective: Most FIRE experts recommend holding either zero gold, or a very small percentage (perhaps 5%) as a “just in case the world ends” hedge. It is not a primary engine of wealth.

Analyzing the Historical Trends (US & Australia):

The Growth Winner (Stocks): In both the US and Australia, over 20-30 year periods, stocks almost always win. The US market has historically been driven by tech growth, while the Australian market relies heavily on mining/banking dividends. Both are volatile but powerful engines.
The Stabilizer (Bonds): During the 2008 Global Financial Crisis, when stocks dropped nearly 50%, high-quality Government bonds went up. Having them in your portfolio meant you lost less money overall, making it easier to sleep at night.
The Inflation Loser (Cash): While safe today, $10,000 sitting in a standard bank account for 30 years would buy significantly less stuff today than it did back then.
The Wildcard (Gold): Gold had massive runs in the 1970s (inflation) and after 2008 (fear). But between 1980 and 2000, it basically did nothing for two decades.

Good news is that you don’t have to pick just one. The magic happens when you mix them.

A portfolio that is 100% Stocks might return an average of 10% per year, but with terrifying 40% drops.
A portfolio that is 60% Stocks and 40% Bonds might return an average of 8% per year, but the worst drops might only be 20%.

For many FIRE investors, giving up that little bit of extra return is worth it to avoid the heart-stopping crashes. This allows you to “stay the course”—which is the most important part of investing.

Comparison Tables: The Cheat Sheet

Here is a quick reference guide to how these assets stack up against each other.

Risk vs. Reward Profile

Asset Class	Historical Long-Term Return	Volatility (Risk of zig-zagging)	Primary Role in Portfolio
Stocks	High	High	Long-term growth engine.
Corp Bonds	Moderate	Moderate	Income and moderate safety.
Gov Bonds	Low to Moderate	Low	Safety net, deflation hedge.
Gold	Varies widely	High	Chaos/Inflation hedge.
Cash	Very Low	None	Emergency fund, short-term spending.

Income and Correlation

Asset Class	Does it produce income? (Dividends/Interest)	Correlation to Stocks
Stocks	Yes (Dividends)	N/A (It is the market)
Corp Bonds	Yes (Interest)	Moderate correlation (Often drops slightly when stocks crash)
Gov Bonds	Yes (Interest)	Low/Negative correlation (Often rises when stocks crash)
Gold	No	Low correlation (Moves to its own drummer)
Cash	Yes (Small Interest)	No correlation

Conclusion: Diversification is Your “Sleep Well at Night” Plan

Building wealth for FIRE is not about winning every single year. It’s about surviving the bad years so you are still in the game for the good years.

By mixing stocks (for growth), bonds (for stability), and cash (for emergencies), you create a portfolio designed not just for an Excel spreadsheet, but for the real world—and real human emotions.

Never invest in something you don’t understand just because someone else is doing it. Start with the foundation, understand the tools in your toolkit, and build a house that can withstand the weather.