🧠 Why the 60/40 portfolio is cooked and why alternatives eats in 2025

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🏢 Alternatives: The New Hope for Retail Investors

Last month US Liberation Day tariff event (and more recently, 2022’s -19% stock market correction) should have triggered a wake-up call about the importance of portfolio diversification.

If you’ve been curious about the benefits of alternatives as uncorrelated assets to hedge against the volatility, learn why a migration from the traditional 60/40 portfolio strategy can help hedge your investment portfolio.

📊 What is a 60/40 Portfolio?

The 60/40 portfolio simply means allocating 60% of your investments into stocks and 40% in bonds. For decades, this was considered a safe and smart way to grow your savings through the ownership in publically-traded stocks and US treasuries.

Through stock appreciation and dividend payments, equity ownership in companies through mutual index funds, ETFs or blue-chip value stocks helped investors grow their personal wealth. Conversely, treasury bonds – typically, short- and long-dated treasuries issued by the US government – help preserve capital and protect it when the stock market goes down through monthly, fixed-income interest note payments.

Why the 60/40 Portfolio isn’t diverse enough

The past decade, due to increased geo-political exposure, capital risk and business uncertainty, and experts say it’s time to update the 60/40 investment rule. Since the pandemic, both stocks and bonds have had some rough patches. High inflation, rising interest rates from central banks, and global events (wars, tariffs, trading ports) have made the markets more unpredictable.

As a result, stocks and bonds have become CORRELATED, going down at the same time, which means the old 60/40 mix are not behaving inversely to protect your investment, as it previously did.

🏡 What are Alternative Investments?

Alternative investments are equity-ownership in private assets managed by portfolio companies, such as private equity firms or real-estate investment trusts (RIETs). (For the purpose of this discussion, we’ll only cover regulated publically-traded companies and not private portfolio companies with syndicate funds to individuals or institutions).

These investments can help your money grow in new ways and protect you from the ups and downs of the stock and bond markets. The most common ones for retail investors to know are:

• Real Estate: Instead of taking on debt thru leverage and buying property directly, individuals can indirectly invest in real estate by owning shares in real estate investment trust companies (or REITs). This means investing in companies that have raised an investment fund to own and manage property with a thematic focus, such as multi-family apartments, or commercial office buildings, industrial warehouses, retail malls, care homes, student housing, etc.

• Private Equity: Traditionally, private equity investing in private companies that aren’t on the stock market. You can do this through special funds that pool money from lots of investors. Similar to the public markets, there are many different variety of PE stocks to invest, with varying levels of risk.

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⚖️ What are the Benefits of Holding Alternatives?

Alternative investments offer three critical benefits that are particularly valuable in this new global economic landscape.

📈 Better Returns: Historically, real estate and private equity have made more money for investors than just stocks and bonds alone. For example, private equity funds have often beaten the stock market over long periods. Real estate can also provide steady income from rent, plus the chance for your property to go up in value.

📉 Less Volatility: Stocks and bonds can both drop at the same time, especially during tough economic periods. But real estate and private equity don’t always move in the same direction as the stock market. This means if stocks are down, your real estate or private equity investments might still be doing well, helping to balance your overall returns.

💸 Inflation Protection: When prices go up (inflation), the value of money goes down. Real estate and some private equity investments can help protect you from inflation because rents and business profits often rise with prices.

🔓 Aren’t Alternatives only for Accredit Investors?

Due to their complex nature, lack of regulation, and degree of risk, many private equity and real estate opportunities require you to be an accredited investor, but options like REITs, ETFs, and crowdfunding platforms are open to all.

Traditionally, most alternative assets are held by PE firms specialized in real-estate or private companies who retain institutional investors or accredited, high-net-worth individuals as investors. (Generally, the investment holding-period may be 3-7 years, meaning capital is not liquid).

While publically-traded REITs (e.g. Reality Income for retail malls or Welltower for hospital and healthcare), have always been available to provide real-estate exposure, recently, there’s been a movement by the largest PE firms (Blackstone, Apollo) to enable retail investors to participate in appreciation or fixed-income products, such as private credit debt note instruments that provide fixed-income payments (similar to a corporate note).

• Business Times (MAY 2025): Blackstone, Vanguard, Wellington to launch private markets fund

• CNBC (FEB 2025): State Street, Apollo team up to launch first of its kind private credit ETF

💰 How Much Should You Invest in Alternatives?

BlackRock CEO Larry Fink recommends retail investors slowly add “alternative investments” to their portfolios with a long-term goal of a 50/30/20 blended portfolio mix that provides the growth appreciation potential of the global stock market, the safety of US bonds, and the extra benefits of uncorrelated alternative assets.

• 50% Stocks: Mutual funds or ETFs that mirror the major indices (S&P 500 , Nasdaq, Dow Jones, Russell 2000) with some allocation into individual stocks from selected value and growth companies.

• 30% Bonds: Fixed-income coupon payments from US treasuries (or other).

• 20% Alternatives: Strategic macro-level exposure into real-estate (multi-family, retail malls, hospitals) and private equity (specific sectors).

🏃 How Can You Get Started with Alternatives?

To begin researching alternative assets, it’s easiest to start by identifying the areas of specialty you’d like exposure. After due diligence, create a re-occurring investment schedule with fractional share ownership to dollar-cost average while building your portfolio’s alternatives position.

• Real-Estate: Publically-traded RIETs like Reality Income (retail) , Welltower (healthcare) , Vornado (office) , PE portfolio companies, like Brooksfield Asset Management or Essex Property Trust (multi-family), or ETFs like Vanguard Real-Estate ETF. Additionally, crowdfunding platforms like Republic and Fundrise also offer fractional ownership of shares and ability to dollar-cost average.

• Private Equity: Publically-traded PE firms, like Blackrock , Blackstone , KKR , Apollo , Carlyle Group , or ETFs like Invesco Global Listed Private Equity or State Street IG Public & Private Credit.

Coming soon: New Unprompted Tools & AI Newsletter

This summer, we’ll be releasing all-new AI-powered Unprompted GPT tools powered by OpenAI’s ChatGPT & Yahoo! Finance real-time data to help investors generate new investment ideas:

• 🏢 Real-Estate GPT: Get the dividends and appreciation of real-estate without the leverage. Generate ideas for publically-traded RIETs with monthly (or quarterly) dividend payments and/or appreciation across multi-family, office, industrial warehouse, self storage and more.

• 💵 Fixed Income GPT: In an uncertain economy, monthly payments keep your capital at work while sitting on the sidelines. Generate ideas for publically-traded stocks with monthly (or quarterly) dividend payments across floating rate funds, private credit , collateralized debt loan obligations (CLOs) and more.

• ✨ Unprompted AI Newsletter: Invest beyond Nvidia in the $15T global AI market, from infrastructure, ingest & training, and inference.

Until then, please take advantage of our newest calculator tools added in May.

Upgrade to the PortfolioGPT monthly for $3/mo or $27/annual (25% savings!) to generate unlimited portfolio ideas, receive weekly investing newsletter and access to new AI-powered, prompt-free personal investing tools!

We’ll be back this Saturday morning to recap the week’s financial news, thanks to Republic for sponsoring.

✨ Happy Unprompting,

Rawee
[email protected]

_{PortfolioGPT may earn commission or revenue on some items through the affiliate links in this newsletter.}