What counts as an alternative investment
Alternative investments are, loosely, anything that isn't a publicly traded stock, bond, or cash equivalent. The category covers private equity, private credit, hedge funds, real estate (both public REITs and private deals), infrastructure, commodities, and an ever-growing list of structured products with increasingly creative names. The only thing they really have in common is that they sit outside the public markets most investors already know how to own.
The marketing around alternatives leans hard on exclusivity and on a few well-publicized success stories. The Yale endowment. A pension fund that got into the right buyout fund at the right time. A crypto trade that paid off. The problem is that the median result across the category looks very different from the story, and the fee structure consumes a large share of whatever return does show up. Any honest conversation about alternatives has to start with that asymmetry.
The honest take on each category
We are not against alternatives. We are against being sold them. Here is the honest short version of what we see in each of the major categories.
- Private equity — The best funds genuinely produce strong returns, but access to the best funds is very limited, fees are high, and the money is locked up for years. For most households, the odds of ending up in a median fund with a public-market-minus-fees return profile are real.
- Private credit — A faster-growing category that has filled the gap left by banks pulling back from middle-market lending. Yields look attractive, but the category has not been tested in a serious credit cycle, and illiquidity is priced in only after the default starts.
- Hedge funds — The category's average performance has trailed a simple 60/40 portfolio for most of the past fifteen years, after fees. Individual funds can still earn their keep in specific situations, but the industry average is not a convincing pitch.
- Public REITs — For most households, the simplest and most useful alternative exposure. They trade like stocks, pay real income, and give actual real-estate exposure without the opacity of a private deal.
- Commodities — A useful inflation hedge in small doses, usually accessed through a broad-basket ETF rather than any single commodity. Not a growth investment, and not meant to be.
When alternatives actually earn their place
There are real cases where alternatives are worth the complexity. A household with a large enough taxable portfolio that tail-risk hedging becomes worth paying for. A retiree who genuinely needs an inflation hedge beyond what stocks provide. An investor whose concentrated stock position requires a counterbalance with a return stream that behaves differently. A high-net-worth family whose situation genuinely crosses into the kind of planning high-net-worth households genuinely need, the kind of territory where access to top-tier private funds actually exists and the fees can be justified by the after-tax return. These situations are real. They are also narrower than the industry's pitch deck suggests.
For households outside those specific situations, the right answer is almost always to pass. A well-built core portfolio of public stocks and bonds has already captured the vast majority of what alternatives are claiming to offer, at a fraction of the cost and with none of the liquidity risk. The decision to skip alternatives is not timidity. It is often the smartest trade in the file.
Good alternative decisions are inseparable from what real diversification looks like under the hood, because concentrated exposures, whether they are private or public, change the whole shape of the rest of the portfolio.
Liquidity is the forgotten cost
Most private alternative investments come with lockup periods — sometimes three years, sometimes ten, sometimes longer. Redemptions, when they are allowed at all, happen on a quarterly or annual schedule and can be gated during the exact moments an investor most wants their money back. This is not a footnote. It is the cost that almost never shows up in the pitch deck.
Illiquidity is not automatically bad. An investor who genuinely does not need the capital for a decade can sometimes earn a premium for accepting the lockup. The honest question is whether the plan can absorb having that slice of the portfolio unavailable in a bad year — the same bad year in which the rest of the portfolio is also down and cash suddenly matters more than usual. Most households cannot. A few can. Knowing which household you are is the whole conversation.
Every alternative question eventually folds back into the broader investment strategy the household is running. An alternative sleeve is only as useful as the core portfolio underneath it.
“The best alternative decision most households can make is the decision to not buy one they were sold.”
What working with us looks like
An honest review of what's been pitched
Bring us the private placement memorandum, the pitch deck, the fee schedule, and any projected returns the salesperson showed you. We'll walk through the real cost, the real liquidity, and the real after-tax result in plain English. There is no fee for this conversation, and the answer is often that the investment is not worth pursuing.
Integration with the rest of the plan
If alternatives make sense for a household, they become a deliberate slice of the overall allocation — not an add-on. We coordinate the position with rebalancing rules, tax planning, and estate titling so the investment is actually in the right hands and the right account. That integration is often the difference between an alternative that helps and one that quietly hurts.
A note on fit
When this might not be right for you
Alternatives, the way we think about them, are not a fit for many households. Honest disqualifiers:
- Households whose main goal is to add excitement to the portfolio. Alternatives are not for that. Excitement is a separate budget and it belongs outside the plan.
- Investors who cannot comfortably lock up capital for several years without regret. Liquidity is the forgotten cost, and it tends to matter most at the worst possible moment.
- Anyone being sold a private fund by someone whose compensation depends on the sale. The incentive structure alone is a reason to slow down.
- Households whose core portfolio is not yet well-built. Alternatives should not be a shortcut around the fundamental work of allocation, diversification, and cost control.
If any of these describe you, we will tell you so, and we would rather have that conversation on the first call than on the third.
Frequently asked questions
Are alternative investments worth it for most investors?
For most investors, no. The average alternative investment charges more in fees than it produces in excess return over a simple, low-cost public-market portfolio. Alternatives can genuinely help in a few specific situations — large taxable portfolios, inflation hedging, or counterbalancing a concentrated position — but those situations are narrower than the industry's marketing suggests. The right default is to skip alternatives until a specific household reason earns their place.
What is the difference between public and private alternatives?
Public alternatives trade on an exchange and include publicly traded REITs, commodities ETFs, and listed infrastructure funds. Private alternatives do not trade on an exchange and include private equity, private credit, hedge funds, and direct real-estate deals. The public versions give most households the exposure they actually need with none of the lockup risk and much lower fees. Private alternatives are only worth considering when a household has both the capital and the liquidity profile to accept long lockups.
How much of a portfolio should alternatives be?
For most households, zero or close to it. For households where alternatives earn a place, the right allocation is usually small — often ten to twenty percent of investable assets, rarely more. The specific percentage depends on liquidity needs, tax bracket, concentration elsewhere in the portfolio, and how the household would react to a bad year in the alternative sleeve. There is no rule of thumb that substitutes for that conversation.
Do you sell alternative investments?
No. We are fee-only fiduciaries and we accept no commissions, referral fees, or soft-dollar arrangements from any fund manager. When a client brings us an alternative investment that has been pitched to them, we read the documents and tell them honestly what we think. Sometimes the answer is that the investment is reasonable. More often the answer is that it is not worth the cost. Either way, our incentive is the same.
Can I use a REIT for real-estate exposure instead of a private deal?
For most households, yes. A publicly traded REIT index fund gives real, diversified exposure to commercial and residential real estate at a low cost, with daily liquidity, and without the opacity of a private deal. Private real-estate investments can earn their keep in specific situations, but the default for a household that simply wants real-estate exposure in the portfolio is a public REIT allocation, not a private placement.