Advisors say today’s retirement portfolios should go beyond stocks and bonds to include alternatives such as real estate and commodities.
Conditions such as inflation, economic uncertainty and market volatility require retirement investors to consider whether their portfolios are allocated appropriately to thrive in whatever storms come their way.
Portfolio balance is a key consideration. Traditionally, the 60/40 split between stocks and bonds has been the de facto framework, but some advisors suggest other approaches may be more suitable in many cases.
Alexander Harmsen, founder of PortfolioPilot, a San Francisco-based investing platform for self-directed investors, recommends a mix of U.S. equities, commodities, global exposure, high-yield savings or short-duration bonds and inflation-protected assets.
“Diversification.com helps investors identify under- or overexposed areas and provides actionable insights to optimize for today’s dynamic environment,” he said in an email. “A balanced portfolio today goes beyond the traditional 60/40 stock-bond split.”
Every retirement investor has different goals, so there’s no single answer that applies equally to everyone.
In a 2024 JPMorgan investing outlook, global market strategist Jack Manley wrote, “When thinking about portfolio construction in 2025, investors must determine what problems they are solving for: Are they looking for income, capital preservation or growth? Are they tolerant of volatility or risk-averse? And is liquidity important?”
The answers to those questions, Manley added, will inform asset allocation, with traditional and alternative assets playing a role.
For this reason, he said, the traditional framework of 60% stocks and 40% bonds may evolve into one that also includes alternative assets, with lesser allocations to stocks and bonds.
Role of Alternative Assets
The idea of expanding beyond the traditional 60/40 retirement portfolio is becoming more widely accepted. Historically, alternatives have meant commodities, real estate and even hard assets such as art.
Those are still important sources of diversification, but increasingly, asset managers are identifying opportunities using strategies such as hedge funds, arbitrage, private credit and private equity, all of which may be less correlated to traditional assets.
“While not applicable in all client situations, in many cases, alternative investments are no longer optional. They are essential to building a modern, well-balanced portfolio,” said Lori Van Dusen, CEO of LVW Advisors in Pittsford, New York, in an email.
For example, real estate typically provides income in a portfolio and has defensive characteristics.
“Commodities can be highly volatile but can add (excess returns) to a portfolio, depending on the underlying investment. Think gold versus pork futures,” said Bob Welch, senior vice president and financial advisor at Wealth Enhancement Group in Oakland, California, referring to the greater volatility of agricultural commodities compared with gold. Gold tends to be more stable over time, due to its role as a safe-haven asset.
“In a balanced portfolio, there is a place for every asset class. It simply comes down to what the investor is comfortable holding,” he added.
Time Affects Portfolio Weightings
A long-held investing tenet is that younger workers, who have plenty of time ahead of them until retirement, should take more risk while older workers should play it safe to preserve assets.
But reality can be more nuanced. Risk tolerance and specific financial goals often matter more than age.
“Age can often correlate with risk tolerance, but it’s not prescriptive,” said Van Dusen.
For example, she said, a retiree with significant assets and a focus on legacy planning may have a higher risk tolerance than a younger investor with shorter-term financial needs.
“Time horizon informs how much exposure one can have to growth-oriented investments like equities and alternatives, while risk tolerance helps determine the balance between growth and defensive strategies,” Van Dusen said.
Understanding Appropriate Risk Levels
When selecting the appropriate mix of investments, retirement investors should consider a portfolio that matches their comfort level with market fluctuations.
However, retirement investors also need a high enough return to achieve their goal.
When applied to portfolio composition, risk tolerance relates not only to your financial sense of security but also to your long-term retirement goals. This leads to determining the specific allocation of high-risk assets such as stocks.
That comes back to the notion of age and how it applies to asset allocation in any given situation.
“I have older clients who insist on being 100% invested in stocks and I have younger, more risk-averse clients who are happy with fixed income,” Welch said.
“The important takeaway is that no two situations are alike, and as an advisor, it is our job to construct the best portfolio for the client’s unique situation, which might not look like what the textbooks say,” he added.
