Thinking about diversifying with alternatives? Read on to find out how you can balance traditional assets and alts to improve growth and stability.
U.S. alternative assets saw a 42% growth in total assets under management between 2018 and 2020, showing that more investors like you are diversifying with alternatives. But finding the right mix of alts and traditional stocks and bonds can be tricky.
Today, we’ll explore some of the different ways you can balance these investments.
Why should I balance traditional and alternative assets in my portfolio?
Traditional assets like stocks and bonds can offer you stability and long-term growth, making them a potentially reliable foundation for your portfolio.
On the other hand, alternative assets—like real estate, private equity, and SBF notes—give you the potential for higher returns, but they come with different risks. Because each asset type has unique risks and rewards, mixing them up can reduce overall risk while boosting growth.
Finding the right mix of assets for your portfolio
Finding the right balance between traditional and alternative assets can start with a simple strategy like the 70/30 rule. Here, 70% is allocated to traditional assets and 30% to alts.
The 70/30 approach can give you a solid foundation, offering stability from traditional assets while allowing room for growth through alternatives. As you gain experience, you might shift to a 60/40 split.
Ultimately, how you mix up these investments will depend on your own unique investment style – how much you like to take risks, how much you care about liquidity, and your own financial goals.
Try taking our interactive quiz to learn more about your own risk tolerance and what asset mix works best for you.
How does mixing assets minimize risk and maximize gains?
Diversifying your portfolio by mixing traditional and alternative assets can also provide a buffer against market volatility.
Imagine Sarah, a 45-year-old investor who’s been building her retirement savings for over 20 years. In 2019, she diversifies to make a more balanced portfolio: 50% stocks, 30% bonds, and 20% in alternatives like REITs and precious metals.
When the COVID-19 recession hits in 2020, her diversified approach pays off. While the stock market drops by 34%, Sarah’s overall portfolio would only decline by 15%. Her bonds provide stability, and her alternative investments gained value, offsetting stock losses.
What can I do now?
Balancing traditional and alternative assets can help you build a potentially resilient, growth-focused portfolio.
If you want to learn more, explore our resources on the Supervestor platform. Or take our interactive quiz to discover which alternative assets suit you best.
