Investors have to be careful "because they’re being offered little in terms of interest rates. The danger now is of prices moving down, which would leave an investor with nothing," Pimco founder Bill Gross told CNBC Tuesday.
Gross, who runs the $252 billion Pimco Total Return Fund , said investors need "very tangible items" in their portfolios, and that means commodities.
"You have to move from financial assets into the world of real assets," because countries like China are not "looking for financial assets, they’re looking to lock up commodities going forward," Gross said.
He also advises investors to buy shorter-duration bonds and look for inflation protection in Treasury Inflation-Protected Securities (TIPS) and in gold.
Gross told CNBC he also likes high-yielding, dividend-paying stocks, and has a preference for investing in developing markets like China over developed markets.
He said the same in his most recent investment letter, while also stressing that bonds should remain a "critical component" of an investor's portfolio.
Pimco has been buying mortgage-backed securities for months in anticipation of another round of quantitative easing , the so-called QE3, when he thinks the Federal Reserve will buy up these securities.
"The periods after QE1 and QE2 when Chairman Bernanke applied the brakes ... produced 10 to 15 percent declines in the stock market. He doesn’t want to make that same mistake again," said Gross.
Since there is no Fed meeting in May and Operation Twist expires in June, the Fed's next meeting in April will be "the logical time for strong hints" on whether QE3 is imminent, Gross added.
Reuters contributed to this report.