How the Wealthy Invest
What got us here, won’t get us there
Why It’s Time to Move Beyond the 60/40 Portfolio
The Rise of Alternatives
For decades, the 60/40 portfolio—a mix of 60% equities and 40% bonds—was considered the gold standard of balanced investing. It offered growth from equities and stability from bonds. But in today’s environment of persistent inflation, rising interest rates, and volatile markets, this once-reliable formula is showing its age.
Enter alternative investments—a diverse group of assets that are increasingly being embraced not just by institutional investors, but also by individual investors seeking to build more resilient, diversified portfolios. incorporate their practices, and business owners their businesses. While incorporation isn’t right for everyone, it offers a range of financial, tax, and legal benefits that make it a popular choice for physicians and dentists, especially those with higher earnings or established practices.
What are Alternative Investments?
Alternative investments (or “alts”) include asset classes outside of traditional stocks and bonds. While these may seem unconventional, they’ve become a mainstay for the world’s most sophisticated investors.
They can include:
Private equity
Private credit
Real estate
Infrastructure
Hedge funds and long/short strategies
Farmland and commodities
Digital assets and fractionalized art or collectibles
Pension Plans Are Leading the Way
Canada’s largest pension funds have dramatically increased their exposure to alternatives over the past two decades. Why?
1. Superior Risk-Adjusted Returns
Large plans like CPPIB, HOOPP, and Ontario Teachers’ have found that alternatives—particularly private equity, infrastructure, and real estate—offer better returns with lower volatility.
%
The Canada Pension Plan Investment Board (CPPIB) now allocates over 50% of its portfolio to alternative assets.
2. Inflation Protection
Infrastructure assets (e.g., toll roads, utilities) and real estate often have contracts or rents that adjust with inflation, making them ideal hedges against rising costs.
3. Reliable
Cash Flow
Pension liabilities are long-term and predictable. Assets like private credit and infrastructure debt deliver stable, recurring income, which is essential for long-term obligations.
Why Retail Investors Should Follow Suit
Retail investors, especially those nearing retirement or looking for more stability, can benefit from the same principles:
1. Escape the Limitations of Bonds
Bonds are vulnerable in rising rate environments.
Alternatives like private debt or real asset funds offer higher yield with less sensitivity to interest rates.
2. Broaden Diversification
Stocks and bonds often move together during crises.
Alternatives have low correlation to public markets, reducing overall portfolio volatility.
3. Access to Private Market Growth
Historically limited to institutions, private equity and venture capital are now more accessible through funds and platforms.
These markets often outperform public markets over the long term.
4. Protect Against Inflation
Real estate, commodities, infrastructure, and even farmland offer hard asset exposure, helping protect purchasing power.
Even a 15–30% allocation to alternatives can dramatically improve risk-adjusted returns over time.
Final Thoughts
Alternatives aren’t just “alternative” anymore—they’re essential.
The 60/40 portfolio served investors well for decades, but it no longer offers the diversification or return potential it once did. Pension funds have already adjusted—building robust portfolios with significant exposure to alternatives to weather future uncertainty.
Retail investors now have the tools and access to do the same.
This content is intended for general informational purposes only and does not constitute financial, legal, or tax advice.
While providing various important benefits, alternative investments also carry some additional risks, which could be different from the risks associated with investing in public markets. It is important for investors to work with financial professionals who understand private markets and are able to make active investment decisions.
Market risk – Individuals who invest in Alternative investments may experience differentiated market risk compared to public market investments. Private companies are subject to different disclosure requirements and are sensitive to a variety of factors that may impact valuations differently than public markets.
Liquidity risk – Alternative investments have varying liquidity profiles, often allowing liquidity on a monthly, quarterly, or less frequent basis. It is important for investors to understand the liquidity characteristics of alternative investments and your liquidity needs should be measured to determine if investing in Alternative Investments is suitable for you prior to investing.