By Penelope Wang

(MONEY Magazine) – Many investment pros--including Pimco's bond guru Bill Gross--believe that the ballooning budget deficit will lead to lower investment returns from stocks and bonds in coming years. So how do you eke out extra performance without putting your portfolio in peril? These same pessimists say that it's crucial to broaden the type of assets in which you invest. They're doing so by adding real estate stocks, commodities and funds that guard against stock market gyrations. Because these so-called alternative investments don't move in sync with stocks and bonds, adding them to the mix reduces volatility. Some are even calling alternative investments a fourth asset class, one that should be considered as seriously as cash, stocks or bonds. "We believe alternative investments are essential to minimize risk and defend against inflation," says Christopher Cordaro, a financial adviser at Regent Atlantic Capital in Chatham, N.J. Before you plunge in, however, be aware that alternative investments, as stand-alone bets, can be risky too. Sure, these assets may rise when stocks and bonds fall--but the reverse is also true. Moreover, money has rushed into them--especially real estate and commodities--pushing valuations to lofty levels. We recommend that you keep no more than 15% of your overall portfolio in these assets--and no less than 5%. That said, here are three timely opportunities.

--LOOK TO REAL ESTATE For investors who lack a real estate stake, start dollar-cost averaging into a top no-load choice such as Third Avenue Real Estate Value (800-443-1021), which invests in property developers like St. Joe. If you are already investing in a real estate fund, check to see whether gains in that sector have pushed your allocation beyond 10% of assets. If so, consider taking some profits and reallocating to other alternative options.

--DIP INTO COMMODITIES This asset class is a proven hedge against inflation. The trouble is that commodity prices have soared, and the average commodity fund has surged 35% over the past year. So again, move in slowly, dollar-cost averaging and committing no more than 5% of your money. Look for a diversified commodity fund like T. Rowe Price New Era (800-638-5660).

--HEDGE YOUR BETS For added diversification, consider putting 5% into a fund that hedges against stock market volatility. Example: no-load Hussman Strategic Growth (800-487-7626), which invests in midcaps but also occasionally shorts stocks--betting that they will fall in value. Over the past three years, the fund has delivered an impressive 16% annualized return. --PENELOPE WANG