Thomas Ruggie, ChFC®, CFP®, explains why thoughtfully selected alternative investments can strengthen a portfolio beyond the pursuit of higher returns. He explores how alternatives may add diversification, access niche opportunities like AI and space exploration, and provide psychological benefits by reducing day‑to‑day performance watching.
When evaluating alternative investments, most people focus on the potential for higher returns. And while I believe the pursuit of higher returns is a strong reason for alternatives for quite a number of reasons, there are additional benefits as well.
Alternatives can have lower correlation compared to the public sector, offering meaningful diversification when markets don’t behave as expected. They can also provide access to areas not easily available publicly such as AI and space exploration.
And for some investors, there can even be a psychological advantage; because these investments can’t be viewed daily, the inability to track performance as frequently can help prevent emotional reactions.
Growth, Income, Diversification, Downside Protection?
Alternatives can be meant for all the above, but what we typically look for is where we believe there is a strategic advantage, generally for returns, in each of those areas.
We frequently utilize alternatives for diversification as well as downside protection via some strategies. Growth and income, on the other hand, are often more strategic and opportunistic, and this will vary our approach to different providers at different times.
Our Goal: Strategy Comes First
Performance tends to be a key driver, but we use a bucketing process to ensure allocations are proper.
Due to our analysis of income needs, we generally don’t invest in anything that may be illiquid unless the money is statistically not needed for 20 years. Alternatives must support the financial plan, not weaken it.
The conversation with the client boils down to their ability to understand the upside, but more importantly the downside, including:
- Illiquidity risk
- Transparency risks
- Complexity
- Concentration
- Legal and regulatory risks
- Typically higher fees
Our goal is to make sure the investment aligns with strategy, not just recent performance.
We are the ones presenting alternative investments to our clients. It is rare a client comes to us with an investment they want to participate in.
If they do, we use our due diligence process to determine if the opportunity makes sense. It’s a great position to be in, being able to utilize virtually any investment available and not be handcuffed. That allows us to provide unbiased advice.
Long-Term Allocations That Pay Off When It Matters
Right now is a perfect example: we have seen underperformance in our hedge fund positions while the public market continues to reach new highs. Hedge fund use is down significantly.
Yet we believe they play an important role, because several managers have outperformed the broad index over a long period of time, with most of that outperformance occurring during down markets. That is precisely when clients need it most.
For clients, it’s important to focus on performance, but I tend to be more concerned about consistency.
Performance represents where we’ve been. I prefer to focus on where we are going.
It’s important to balance alternatives with traditional asset classes so that the strategy remains cohesive.
Our system for doing this is what I call the Retirement Distribution Strategy (RDS):
- Bucket 1: 10 years of income needs – Fixed income, alternative fixed income, structured notes, and options strategies
- Bucket 2: Years 11–20 – Traditional 60/40, hedge funds, public equity exposure, or a combination
- Bucket 3: 20+ years – Public equities, alternative investments, or a combination
All clients are invested differently, but this framework helps ensure every decision is cohesive.
Due Diligence Over Headlines
We conduct a tremendous amount of due diligence with focus on:
- Consistency of performance
- Historical performance in down markets
- Outlook going forward
- Team’s ability to execute and manage risk
We start by determining whether an investment is the right fit and how comfortable a client is with it, long before performance ever enters the conversation.
Frankly, we undersell the performance aspect. I’m a big believer that strategy trumps performance. With any set of managers, one year will always produce clear winners and losers but over 10 years that delta typically narrows.
A strategy that avoids a performance-only mindset helps eliminate poor, irrational decisions—especially when things are going very well (greed) or very poorly (fear).
Alternative investments can enhance a portfolio’s resilience, expand opportunity, and give investors confidence in both good markets and challenging ones. The key is not just selecting alternatives but selecting them strategically.
Investment advisory services offered through Destiny Wealth Partners, LLC, an SEC Registered Investment Advisor. Destiny Wealth Partners is an independent RIA which also conducts business as Destiny Family Office, Destiny Wealth, Ruggie Wealth Management and Nichols Wealth Partners. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Destiny Wealth Partners), or any non-investment related content, made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Additional disclosures and other important information at https://destinyfamilyoffice.com/disclosures/.
