How Alternative Investments Can Add Value — Not Replace — Traditional Investments
How Alternative Investments Add Value to Your Portfolio
Early in my career, I spent a decade as a specialist trader and member of the New York Stock Exchange. That experience shaped how I think about risk, price discovery, and the ability to sell when you need to. Those lessons remain important today in our work at the Wealth Stewards helping business owners and families connect their portfolios to their broader financial lives. Alternative investments can add useful sources of income and diversification, provided they fit the plan. Stocks and bonds remain a critical part of our portfolios, with alternatives working in a supporting role.
Why Alternative Investments Are Getting More Attention Right Now
The traditional case for a stock-and-bond portfolio rests on one core assumption: when stocks fall, bonds tend to hold steady or rise, cushioning the blow. That relationship broke down in 2022, when stocks and bonds declined together for the first time in two decades, and periods of positive correlation have continued to resurface. In an environment where inflation is more volatile and public equity markets are increasingly concentrated in a small number of large companies, relying on stocks and bonds alone leaves portfolios more exposed to the same handful of risks. We explore the case for looking beyond a conventional allocation in why alternatives are no longer optional for investors trying to navigate this shift.
The Value of Diversification, Without Abandoning Traditional Investments
True diversification means owning assets that respond differently to the same economic conditions. Alternative investments can offer return drivers that aren’t tied directly to the daily swings of public markets, which is exactly what makes them valuable additions to a portfolio. But that value depends on stocks and bonds remaining the foundation. Traditional investments provide the liquidity, transparency, and simplicity that most households rely on for everyday needs, from rebalancing to funding near-term goals. Alternatives are a complement to that foundation, not a substitute for it, which is a theme we explore further in our thinking on building resilient portfolios in an uncertain market.
How Much Should You Allocate to Alternatives?
I start with what the money needs to do, rather than a target percentage. An owner considering a sale in three to five years may already have most of their wealth tied up in a private company. Adding another illiquid investment could increase the same exposure we are trying to manage. For suitable clients, our portfolio discussions often consider an alternatives allocation around 10% to 20%, but that is a planning reference, not a prescription. Cash needs, existing private holdings, potential capital calls, and the timing of a business transition determine whether the allocation should be smaller, larger, or zero.
Alternative Investment Types Worth Exploring
Private Equity
Private equity involves investing directly in privately held companies, often to fund growth, a buyout, or a turnaround. Because these investments aren’t publicly traded, they typically come with multi-year lockups, but that illiquidity has historically been paired with a return premium for investors willing to wait it out. Retail investors increasingly gain access through evergreen and interval funds, which offer periodic redemption windows and meaningfully lower minimums than the traditional, multi-million-dollar commitments once required.
Private Credit
Private credit involves lending outside traditional bank lending or public bond markets. It can provide income, but a higher yield needs to be understood in the context of the borrower’s ability to repay. I want to know what supports the loan, where the lender stands if something goes wrong, and how much leverage the fund itself uses. Like private equity, private credit has become more accessible through interval funds and business development companies, some with minimums as low as a few thousand dollars, though investors should understand that “quarterly liquidity” is not the same as immediate access to cash.
Real Assets: Real Estate and Infrastructure
Real estate and infrastructure investments, from commercial property to toll roads and utilities, can provide income and a partial hedge against inflation, since their cash flows are often tied to long-term contracts or rents that adjust over time. These assets can be sensitive to interest rate changes and are generally illiquid, but they offer a return stream that behaves differently than stocks or bonds. We cover this category in more depth in our recent look at infrastructure, real estate, and the next wave of alternative investments.
Hedge Fund Strategies
Hedge fund strategies include long-short equity, managed futures, and approaches that trade interest rates or currencies. Some seek returns from sources beyond the direction of stock markets, although diversification benefits vary and losses remain possible. My background in trading makes me interested in how a strategy works, especially its leverage, liquidity, and behavior during market stress. Fees and tax treatment matter to the return an investor actually keeps. Direct access typically requires accredited investor or qualified purchaser status, though liquid alternative mutual funds and ETFs offer a more accessible, if more limited, way to gain similar exposure.
Understand the Liquidity Trade-Off Before You Allocate
Nearly every alternative investment asks you to give up some liquidity in exchange for its return potential, and that trade-off deserves real scrutiny before you commit capital. Redemption windows can be delayed or capped during periods of market stress, exactly when investors are most likely to want their money. It’s also worth thinking ahead: illiquid holdings can create real complications for an estate, a topic we explore in what happens to illiquid investments when an estate is settled. Understanding what liquidity really means in private markets before you invest can help you avoid an unpleasant surprise later.
Build Alternatives Around Your Portfolio, Not Instead of It
My job is to connect investment decisions to the life and business those investments are meant to support. My CFP®, CIMA®, and CEPA® training informs that work, but the starting point is always understanding the person across the table. At The Wealth Stewards, we evaluate alternatives alongside public investments, cash needs, taxes, and existing business exposure. Every holding should have a clear purpose and risks you understand. To discuss where alternatives might fit in your own plan, contact TWS to start the conversation.
Frequently Asked Questions
What’s the difference between an alternative investment and a traditional investment?
Traditional investments generally include publicly traded stocks, bonds, and cash. Alternative investments include private equity, private credit, real assets, and hedge fund strategies. Many private alternatives are less liquid and valued less frequently, while some alternative mutual funds and ETFs trade or redeem daily. The underlying strategy and investment structure determine the risks and potential diversification benefits.
Should alternative investments replace stocks and bonds in my portfolio?
No. In the portfolios we build, alternatives complement the traditional core when they serve a clear purpose. Stocks, bonds, and cash help meet spending needs and provide flexibility. An alternative allocation should reflect the investor’s goals and ability to accept its risks, including potential losses and liquidity restrictions.
Are alternative investments only for wealthy or accredited investors?
Historically, yes, but that’s changing. Evergreen and interval funds have lowered minimums and broadened access to private equity, private credit, and real assets, though some strategies, like direct hedge fund investments, still require accredited investor or qualified purchaser status.
What is the biggest risk of investing in alternatives?
There is no single biggest risk across all alternatives. Illiquidity is a major concern in private investments, but credit losses, leverage, valuation uncertainty, manager decisions, and fees also matter. Before investing, understand how you could lose money and whether you could access the remaining capital when needed.
How do I know if alternative investments are right for me?
Start with your goals, cash needs, time horizon, and existing exposures. Business owners should include their company and directly owned real estate in that assessment. An advisor can help evaluate the strategy, manager, fees, liquidity, and tax implications, then determine whether an allocation improves the overall plan.
Sources
BlackRock. (2026). Rebuilding 60/40 portfolios with alternatives.
J.P. Morgan Private Bank. (2025, September 26). Beyond the 60/40 mix: 3 reasons to consider alternatives.
State Street Investment Management. (2026). Is it time to rethink the 60/40 portfolio?
Acuity Analytics. (2026, May 6). Evergreen funds: Structure, types & private market growth.