How The Wealthy Invest
What Got Us Here, Won’t Get Us There
Wealthy investors are increasingly turning to alternative assets—like private equity, real estate, and hedge funds—for diversification, inflation protection, and higher return potential. Once limited to institutions, access to these alternatives is now more widely available.
The Rise of Alternatives
Why It’s Time to Move Beyond the 60/40 Portfolio
For decades, the 60/40 portfolio—60% equities and 40% bonds—has served as the go-to allocation for balanced investors seeking both growth and protection. It worked well in an era of declining interest rates and relatively stable market cycles. But the financial landscape has changed. With increased market volatility, persistent inflation, and rising interest rates, the traditional 60/40 approach may no longer provide the risk-adjusted returns or diversification investors need.
The Cracks in the 60/40 Model
Over the past few years, cracks have started to show in the 60/40 portfolio. In 2022, both stocks and bonds posted significant losses simultaneously—something that rarely occurred in past decades. This breakdown in correlation left many investors exposed and questioning whether their “balanced” portfolio was still resilient.
Key challenges facing the 60/40 portfolio:
- Higher interest rates put pressure on bond prices, eroding the "stability" side of the equation.
- Increased stock market volatility reduces predictability and increases downside risk.
- Inflation risk eats away at real returns on both fixed income and equities.
- Global uncertainty and geopolitical tensions add further complexity to traditional asset allocation models.
The Case for Alternatives
To address these risks and improve portfolio resilience, many high-net-worth investors and institutions are shifting toward alternative investments. Alternatives refer to a broad category of assets and strategies outside traditional stocks and bonds, including:
Private Equity
Private Credit
Hedge Funds
Real Estate
Infrastructure
Commodities
Structured Products
Key Benefits of Alternative Investments
- Diversification
Alternatives often have low or negative correlation with traditional markets, helping reduce overall portfolio volatility and drawdowns. - Inflation Protection
Real assets such as real estate, infrastructure, and commodities can offer a hedge against inflation and rising interest rates. - Enhanced Return Potential
Private markets have historically outperformed public markets over long periods, especially in areas like private equity and private credit. - Access to Unique Opportunities
Alternatives can offer exposure to niche sectors, innovative startups, and global infrastructure projects that aren’t available through public markets. - Custom Risk/Return Profiles
Sophisticated structured products and hedge fund strategies can be tailored to meet specific risk and income objectives.
The Rise of Private Market Access
In the past, access to alternative investments was limited to large institutions or ultra-high-net-worth individuals. Today, thanks to financial innovation and more democratized platforms, qualified investors now have broader access to these sophisticated strategies, often through feeder funds or interval funds with lower minimums and more flexibility.
Building the New Portfolio
A modern, resilient portfolio may look more like 50/30/20 (equities/fixed income/alternatives) or even 40/30/30, depending on the investor’s goals, liquidity needs, and risk tolerance.
At Legacy Private Client Services, we work with our clients to build diversified portfolios that integrate alternatives thoughtfully—offering new sources of income, growth, and downside protection.
Final Thought
The 60/40 portfolio isn’t dead—but it is outdated. In a world where traditional assets no longer provide the same safety and returns they once did, it’s time to rethink the foundation of portfolio construction. Alternatives are no longer optional—they’re essential.