The traditional 60/40 investment model with 60% stocks and 40% bonds has been used for decades. It worked well in a world of low inflation, falling interest rates, and strong bond performance. But now, the times have changed. Interest rates are higher, inflation remains above average, and global uncertainty is affecting markets more than ever. The traditional 60/40 strategy might not offer the same stability and growth to many investors as it did before.
At Capital Edge, we help our clients rethink how portfolios are built. That often means including alternative investments, or “alts,” in addition to traditional assets like stocks and bonds. Alts can offer more variety and help reduce risk when markets are unpredictable.
What Are Alternative Investments?
Alternative investments are assets that do not fit into the usual stock or bond categories. These assets behave differently from traditional investments. Including them in a portfolio can help balance returns and lower overall risk.
Why Consider Alternative Investments?
In the market environment nowadays, bonds face more challenges than before. Interest rates are more volatile, and high government deficits add pressure. For this reason, we often reduce bond holdings and replace part of them with alternatives. These offer a unique risk reward equation and bring different sources of return to the table.
Assets like private equity and debt, gold and Bitcoin are also becoming more relevant. Private equity and debt can drive returns up at the fund or portfolio level while diversifying both public market risk and cyclical risk. Gold has long been seen as a safe store of value, and many central banks are increasing their gold reserves. Bitcoin, while more volatile, is gaining interest due to its potential role in the digital economy and growing acceptance among younger investors.
How We Choose the Right Alternatives
Choosing the right alternatives requires more research than selecting stocks or bonds. At Capital Edge, we start by analyzing a wide range of available funds and strategies. From there, we apply strict screening methods to find managers with proven track records, fair fees, and strong operations. We focus on selecting options that are less connected to traditional markets and have shown defensive behavior during tough times.
We also look closely at gold and Bitcoin. Gold, which tends to move differently from both stocks and bonds, may be funded from existing bond allocations. Bitcoin, on the other hand, is more volatile and usually replaces a small part of the stock allocation.
How Much Should You Invest in Alternatives?
Once the right alternatives are chosen, the next step is deciding how much to invest in each. We don’t use a fixed number. Instead, we look at the overall portfolio and adjust the size of the alternatives section based on your goals and risk profile.
For moderate growth portfolios, alternatives can take up a larger portion, in more conservative or aggressive portfolios, that percentage may be lower. We carefully adjust the balance so that the portfolio stays aligned with your strategy while gaining the benefits of diversification.
A Smarter Way to Invest
Adding alternatives to your portfolio doesn’t mean starting over. It’s about improving what you already have. Our team at Capital Edge uses proven methods, research-backed tools, and deep market insight to help you make the most of today’s investment opportunities.
Contact us to start your investment process.