If you are, like me, into trying out new OSes and nightly builds but can’t fully commit to upgrading your main/only computer (worse if it’s a laptop) my following solution might also be something for you.
I settled on installing Sierra on an external drive and starting the computer with the option key pressed to select the OS I want to use. I have a 13ʺ laptop with only a smallish internal SSD drive and didn’t want to have a cabled noisy hard drive next to it, so I decided to use an SDHC card that fits snugly into the slot of my laptop without sticking out. (There are several cards and adapters like this available; I bought the Transcend option.)
Next you have to format your new hard drive with Disk Utility in the GUID format, so a Mac can use it as a startup disk, and install the new OS. Two ways: 1. start in recovery mode (press cmd+R) and install the OS onto the external drive from there, or 2. start as normal and load the installer for the new OS from the App Store. I did the latter (takes a long time if you have a slow connection!). Then when asked simply select the new external drive as location, and done. (Well, all in all took something like 2+ hours).
Other options are tiny USB-sticks, especially if you have USB3 ports since those could be faster than the average SD card. Or you can use your internal drive of course if it’s large enough. For this, you’d have to make a backup of your hard drive, reformat it with two partitions, reinstall the backup on one of the partitions, then install the new OS on the other.
Starting from an external drive is a bit slower than from the internal SSD (~30% longer) but once it’s running, it’s not that slow using it actually (totally depending on what you do). SDHC cards come in all kinds of speed though. Don’t take the cheap 30 MB/sec ones and also check the write time. The one I got is advertised as 95/60 MB/sec. SD cards in laptops use the USB bus so any card can only be as fast as the bus. USB flash drives can potentially better max that out but I like that I can keep my USB slots free by using the SD slot. As for size, the normal OS install and my minimum of experimental font/browser software takes up ~15GB, so you should at last get a 32GB card/drive.