How alternative investments can help HNWIs build more resilient portfolios
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Heard the buzz? High-net-worth individuals are diverting from traditional asset classes and investing in alternative investments.
In a move to boost their wealth, high-net-worth individuals (HNWIs) are taking on more risk. As of January 2025, they have put about 15% of their portfolios into alternative investments.
The younger generation of investors is at the forefront of this trend. Around 61% of millennial and Gen Z HNWIs are actively directing their capital toward high-growth assets and specialized offerings.
The reason behind this is simple. Adding alternative assets to your portfolio can improve its resilience and help protect it from market volatility. How? We’ll explore that here.
What are alternative investments?
An alternative investment is a financial asset that isn’t a stock, bond, or cash. These assets are also known as alternative assets. They come in many different forms.
Common types include private equity, real estate, and hedge funds. They also include commodities like oil or precious metals. Collectibles like art, rare wine, or classic cars also come under this category.
Note, though, these investments are illiquid compared to traditional ones. This means they can’t be sold as quickly or easily. They also may not be as heavily regulated.
How alternative investments can strengthen your portfolio
Here’s how alternative investments strengthen your portfolio:
1. Reduces portfolio volatility
Alternative investments can help make a portfolio more resilient by reducing its overall volatility. These assets often have a low correlation with traditional markets.
Investments in private companies do not fluctuate with the daily movements of the public stock market. This lack of public trading means they can reduce overall portfolio volatility, providing a stabilizing force.
No wonder private equity is attracting more attention from HNWIs during turbulent times. In fact, a State Street study found that the appeal of smoother, less volatile returns is a major driver behind the shift. About 22% of respondents cited this as their primary reason for increasing allocations to private equity.
2. Hedge against inflation
Inflation can quietly eat away at your money’s value. It makes a dollar today worth less tomorrow.
Some alternative investments, such as real estate, tend to appreciate during periods of inflation. Their value is directly linked to the cost of physical goods and services, which naturally rises as inflation takes hold.
In recent years, crypto has joined this list. Ethereum staking, in particular, has become a popular option. Not surprisingly, the amount of ether staked reached an all-time high, leading to a surge in network transactions.
To participate in Ethereum’s staking ecosystem, various entities, such as companies, individuals, and groups, lock up a specific amount of tokens on the network, explains Bit Digital. This way, they help create new blocks and receive rewards for their contribution.
3. Access to unique growth opportunities
Alternative investments offer access to avenues that are simply not available to the general public. This is a key reason why wealthy individuals often allocate a significant portion of their portfolios to these assets.
The opportunity for growth beyond public markets is substantial. For example, certain alternatives, such as venture capital and private equity, can yield significantly higher returns than publicly traded securities.
There are many examples of successful ventures that highlight this potential. Peter Thiel’s early investment in Facebook remains a well-known case. His initial $500,000 investment in 2004 for over 10% stake in the company resulted in him selling shares for over $100 billion by the time he fully exited.
How to get started
If you’re new to the space, here’s a quick roadmap to get started:
1. Start small
Don’t commit a large sum of money from the get-go. Begin with a careful approach.
Dedicate a small percentage of your wealth to alternatives. It’s wise to allocate up to 25% of an efficient portfolio. For others, this number can be even higher. A gradual start allows you to learn as you go.
2. Balance is key
A resilient portfolio is a balanced one. Alternative investments should complement, not replace, traditional assets like stocks and bonds.
A well-rounded portfolio includes a mix of these asset classes, with each contributing to the investor’s overall goals. Don’t forget to diversify within the alternative asset class itself.
Spreading investments across different types of alternatives, such as private equity and tangible assets, helps mitigate risk and capitalize on different market dynamics.
3. Work with experts
Alternative investments are complex, which means they are not a do-it-yourself project.
A financial advisor is an essential partner for navigating this landscape. Beyond simply selecting investments, an advisor works to craft a custom wealth plan that aligns with an individual’s lifestyle, values, and personal priorities. They provide a holistic approach to the entire financial picture.
A skilled advisor can also provide access to exclusive opportunities through their vast networks. They apply rigorous due diligence and analysis to identify high-quality strategies.
Building a legacy of resilience
The financial landscape is in constant flux, and the need for a resilient portfolio has never been more pressing. Alternative investments are a strategic and increasingly accessible necessity for HNWIs seeking to preserve and grow their wealth.
So, why settle for a portfolio that bends with every market gust when you can build one that stands firm through the storms? Explore your options and diversify with intention.
The right mix of traditional and alternative assets can help you not just survive market volatility but thrive through it. After all, resilience isn’t built overnight but with smart choices today that pay off tomorrow.