\n Traditional 60\/40 portfolios are under pressure as bonds lose their reputation as the \u201csafe\u201d side of investing, prompting more investors to explore alternatives. Financial advisor Todd Bryant, CFP\u00ae, ChFC\u00ae, CLU\u00ae, AIF\u00ae, explains why structured notes and other alternative strategies are gaining traction, how much exposure may be appropriate, and why education and clear communication are critical when reshaping long-term portfolios.\n <\/p>\n
For decades, the 60\/40 portfolio was considered the cornerstone of sound, balanced investing because it offered a mix of growth and stability that stood the test of time.\u00a0\u00a0<\/p>\n
But in recent years, that traditional model has been challenged like never before. When I look back over the past four years or so, including the turbulence of 2022, the performance of bonds has been especially\u00a0eye opening.\u00a0\u00a0<\/p>\n
The US bond aggregate index, for instance, has\u00a0actually been\u00a0slightly negative over that\u00a0time period.\u00a0Bonds are supposed to be the safe part of a portfolio; the part that provides consistency when markets get rough. But, during this stretch,\u00a0they\u2019ve\u00a0lost value.\u00a0<\/p>\n
In 2022, we\u00a0witnessed\u00a0one of the worst years ever for the 60\/40 model. Stocks were down, and bonds were down even more. For many investors, that was a wake-up call. When both sides of your \u2018balanced\u2019 portfolio are in the red,\u00a0it\u2019s\u00a0natural to question whether the old rules still apply.\u00a0<\/p>\n
Why the 60\/40\u00a0Isn\u2019t\u00a0Working the Same Way\u00a0<\/p>\n
The problem\u00a0isn\u2019t\u00a0that the 60\/40 portfolio is broken;\u00a0it\u2019s\u00a0that the world around it has changed.\u00a0\u00a0<\/p>\n
The spike in interest rates in 2022 was one of the sharpest\u00a0we\u2019ve\u00a0ever seen, and since bond prices move inversely to interest rates, existing bond values dropped fast. A lot of investors\u00a0didn\u2019t\u00a0fully understand why their \u2018safe\u2019 investments were suddenly in the red.\u00a0<\/p>\n
Now, for anyone buying bonds more recently, the story is a bit different. With higher interest rates, new bonds are paying better yields.\u00a0So\u00a0the next few years might look much better for bond investors.\u00a0\u00a0<\/p>\n
But that\u00a0doesn\u2019t\u00a0change the fact that many people lost confidence in the idea that bonds can always serve as a stabilizer, which has opened the door\u00a0for\u00a0greater interest in alternative investments.\u00a0<\/p>\n
The Rise of Alternatives\u00a0<\/p>\n
When I first\u00a0started in\u00a0this business, it was all about stocks and bonds, while alternatives were\u00a0largely reserved\u00a0for institutions or ultra-wealthy investors.\u00a0\u00a0<\/p>\n
But times have\u00a0changed\u00a0and\u00a0we\u2019ve\u00a0seen a real democratization of investing recent regulatory changes allowing 401(k) plans to include access to private equity and other alternatives. That means a much broader segment of investors can now own assets that were once off-limits.\u00a0\u00a0<\/p>\n
This accessibility can be a good thing, but it also creates new challenges. Many investors\u00a0don\u2019t\u00a0really understand what\u00a0they\u2019re\u00a0buying when it comes to alternatives, and these investments can behave very differently from traditional assets.\u00a0<\/p>\n
What Clients Are Asking For\u00a0<\/p>\n
Interestingly, most clients\u00a0don\u2019t\u00a0come to me asking specifically for \u201calternative investments.\u201d Instead,\u00a0they\u2019ll\u00a0say something like, \u201cTodd, is there something different we should be looking at?\u201d\u00a0<\/p>\n
That\u2019s\u00a0usually where the conversation begins.\u00a0There\u2019s\u00a0a natural\u00a0curiosity; people want to know\u00a0what\u2019s\u00a0out there that might help them achieve better returns or reduce volatility.\u00a0<\/p>\n
From my perspective, part of my role as an advisor is to bring new ideas to the table, not just react to what clients are hearing elsewhere.\u00a0We need to be ready to introduce clients to\u00a0new ideas, but only after\u00a0we\u2019ve\u00a0done our homework and know\u00a0what\u2019s\u00a0best suited to their tastes and needs.\u00a0<\/p>\n
What\u00a0We\u2019re\u00a0Using\u00a0<\/p>\n
At my firm, one of the main alternative strategies we use is structured notes, which sit somewhere between equities and fixed income.\u00a0\u00a0<\/p>\n
They carry some level of risk, but they also offer potential returns that justify that added exposure. For many clients,\u00a0they\u2019ve\u00a0provided a good middle ground which is different from the traditional mix but not so unfamiliar that it feels uncomfortable.\u00a0<\/p>\n
There are, of course, other alternative investments including private equity, hedge funds, real estate, commodities, but many of those require high minimum investments or long lock-up periods, making them impractical for the average investor.\u00a0\u00a0<\/p>\n
Structured notes, on the other hand, can often fit more seamlessly into a diversified portfolio.\u00a0<\/p>\n
The Importance of Education\u00a0<\/p>\n
Whenever we talk about alternatives, education becomes critical. These assets are often less liquid and less transparent than stocks or bonds. You\u00a0can\u2019t\u00a0just pull up a ticker symbol and check their value every minute. That lack of visibility can be unsettling for some investors.\u00a0<\/p>\n
I make it a point to walk clients through the basics of liquidity and risk tolerance before\u00a0allocating\u00a0anything to alternatives. I break down their assets into three\u00a0timeframes:\u00a0<\/p>\n
\n\tShort-term dollars: money\u00a0they\u2019ll\u00a0need within three years;\u00a0essentially their\u00a0emergency fund.\u00a0
\n\tMid-term dollars: funds they might need in\u00a0roughly 4\u201315 years.\u00a0
\n\tLong-term dollars: investments\u00a0meant for\u00a015 years or more.\u00a0
<\/p>\n
If someone might need the money soon, alternatives usually\u00a0aren\u2019t\u00a0the right fit.\u00a0They\u2019re\u00a0better suited for the long-term portions of a portfolio where liquidity\u00a0isn\u2019t\u00a0as critical.\u00a0<\/p>\n
Even after investing, I remind clients that the value they see\u00a0on\u00a0their statements might not fully reflect the true, real-time value of these holdings. Transparency in expectations is everything.\u00a0<\/p>\n
How Much Is the Right Amount?\u00a0<\/p>\n
Every client is different, but\u00a0as a general rule, our firm caps alternative exposure\u00a0at\u00a0around 30% of a client\u2019s total portfolio, depending on the product type and risk profile.\u00a0<\/p>\n
In practice, though, most clients are well below that, often between 5% and 20%.\u00a0<\/p>\n
For someone transitioning from a 60\/40 portfolio, it might make sense to think of it as a 60\/30\/10 model with that 10%\u00a0allocated\u00a0to alternatives. In most cases, the alts\u00a0portion\u00a0would come from the bond\u00a0side, since\u00a0that\u2019s\u00a0where many investors have been feeling disappointed in recent years.\u00a0<\/p>\n
The Bottom Line\u00a0<\/p>\n
The 60\/40 portfolio had an incredible run, and it may still play a role for many investors.\u00a0\u00a0<\/p>\n
But diversification today looks different than it did 20 years ago. The world has changed with interest rates, inflation<\/a>, global politics, and market\u00a0dynamics\u00a0all more complex.\u00a0<\/p>\n Alternative investments\u00a0aren\u2019t\u00a0a magic bullet, but they do offer another tool for building resilience\u00a0into\u00a0portfolios. The key is education, communication, and balance, ensuring clients understand what they own, why they own it, and how it fits into their long-term plan.\u00a0<\/p>\n In the end,\u00a0that\u2019s\u00a0what good advising is all about: helping clients stay informed, confident, and positioned for the future even as the old models evolve.\u00a0<\/p>\n -446 W. Plant St Ste 2 Winter Garden, FL 34787. 407-794-7415.\u00a0<\/p>\n