alternative investments are no longer just for institutions or the ultra-wealthy
For decades, the 60/40 portfolio - 60% equities and 40% bonds - was the gold standard for balanced investors. But the world has changed.
Low interest rates, heightened market volatility, and structural shifts in the global economy have made the traditional approach outdated and insufficient. Meanwhile, alternative investments are no longer just for institutions or the ultra-wealthy. They are becoming essential tools for building diversified, resilient portfolios.
From private credit and real assets to structured products and royalties, alternatives offer access to income, inflation protection, and alpha sources unavailable in traditional markets.
Diversification from Traditional
Today's investors need more than stocks and bonds. They need exposure to uncorrelated return streams, access to private markets, and strategies designed to preserve and grow capital in any market environment.
In my book, Beyond Traditional – Unlocking the Potential of Alternative Assets, I provide a comprehensive guide for modern investors, and I address how stocks and bonds were negatively impacted during the 2008 financial crisis, highlighting the limitations of traditional investments.
Diversification remains key, but this has evolved beyond simply stocks, bonds, and cash holdings, avoiding portfolios that are too reliant on correlated assets by allocating them to those that behave differently including tangible assets (including real estate and commodities) and instruments such as private equity, private credit and others.
Why are Alternatives Different?
The key characteristic that defines alternative investments is their potential to deliver returns that are not correlated with traditional asset classes. This lack of correlation can make them valuable additions to a diversified portfolio, providing a buffer against market volatility.
Gold, for example, can hedge against the declining value of money, or real estate may provide income even when stock markets are volatile.
While these asset classes were historically the domain of institutional investors, they are increasingly available to (and being adopted by) retail investors.
Risky Investments?
A key risk for alternatives is illiquidity due to how they are bought and sold with some requiring investors to hold them for many years, rather than the simplicity of public trading of stocks and bonds. This could lock up investors’ money at times of financial distress.
Alternatives can be complex too, often requiring expert knowledge and making it harder for retail investors to assess the true value of assets and make informed decisions. Fees are also a consideration as they can be higher than traditional investments.
Who Could Benefit?
Alternative investments are not for everyone and are typically best suited to those investors who have a:
- Higher risk tolerance
- Longer investment horizon
- Desire for greater diversification
While high-net-worth investors are more likely to hold alternative assets, other investors can benefit but need to have the right mindset and a thorough understanding of the risks involved.
Having a diversified portfolio of traditional investments is essential before venturing into alternatives and working with a financial advisor with specialist knowledge can be beneficial.
