Should High Net Worth Investors Include Alternative Investments in Their Portfolio?
Last reviewed: July 2026
Yes, most high net worth investors should consider a measured allocation to alternative investments, but only after the core stock-and-bond portfolio is built correctly. Alternative investments are assets outside publicly traded stocks and bonds, including REITs, commodities, cryptocurrency, private equity, and private credit. Their value comes from lower correlation to public markets, not from chasing the biggest return. The right question isn't whether to own alternatives. It's which ones solve a real problem in your specific plan.
Key Takeaways
- Alternative investments are assets outside public stocks and bonds, used mainly to lower portfolio correlation, not to maximize returns.
- U.S. REITs returned roughly 8.75% annually over the long term, per Nareit data.
- Most advisors cap speculative crypto at 1% to 5% of total wealth you could afford to lose.
- A common alternatives allocation for high net worth portfolios falls in the 10% to 20% range, sized to liquidity needs.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate alternative investments and asset allocation since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff tells clients that most alternative investment mistakes come from buying the story before sizing the position, and the sizing matters far more than the pick.
What Are Alternative Investments and Why Do They Matter?
Alternative investments are any asset class that sits outside publicly traded stocks and bonds. REITs, commodities, cryptocurrency, private equity, private credit, hedge funds, managed futures, and infrastructure all fall under this umbrella. The defining trait isn't exotic returns. It's that they tend to move on a different rhythm than the public markets, which is exactly what diversification needs.
For decades, the 60/40 stock-bond portfolio was the default for balanced investing. That model strained in 2022, when stocks and bonds fell together and the classic 60/40 portfolio lost roughly 16% for the year, according to data widely tracked across the industry. That correlation breakdown is part of why high net worth investors started looking past the traditional two-asset mix.
The case for alternatives is specific. They can offer lower correlation to equity swings, exposure to return drivers public markets don't provide, and in some cases a hedge against inflation. The catch is they often carry higher fees, less liquidity, and less regulatory transparency. Jeff Judge often reminds clients that an alternative investment only earns its place when it solves a problem the existing portfolio can't.
How Do REITs Fit Into a Diversified Portfolio?
Real Estate Investment Trusts give you exposure to income-producing real estate without owning buildings directly. REITs own, operate, or finance properties across sectors, from apartments and warehouses to data centers and cell towers. They trade like stocks, which solves the liquidity problem that direct real estate creates.
By law, REITs must distribute at least 90% of their taxable income to shareholders, per the IRS, which is why they tend to pay meaningful dividends. Over the long term, U.S. equity REITs have delivered annual total returns of roughly 8.75%, according to Nareit. That income discipline is the draw for many high net worth investors.
REITs aren't free of risk. They're sensitive to interest rates, because rising rates raise borrowing costs and make REIT yields compete harder against bonds. Different sectors behave differently across the cycle, so sector selection matters. Many investors hold REITs as a complement to, not a replacement for, direct property holdings. For investors weighing how much real estate exposure makes sense, Is my portfolio diversified enough to handle market volatility? is worth reading alongside this.
Do Commodities and Cryptocurrency Belong in a Portfolio?
Commodities are physical goods like gold, oil, agricultural products, and industrial metals. They often move differently than stocks and bonds, and gold in particular has historically served as a store of value during economic stress. Gold traded above $3,000 per ounce in 2026, reflecting strong demand during a period of geopolitical and currency uncertainty.
The weakness in commodities is that they generate no cash flow. All return comes from price movement, which is volatile and hard to forecast. Most high net worth investors get commodity exposure through funds or managed futures rather than physical ownership, and they use it for a defined purpose: inflation protection or crisis hedging, not core growth.
Cryptocurrency is the most debated alternative on this list. Bitcoin and other digital assets attract attention for low correlation, scarcity, and exposure to blockchain innovation. The 2024 launch of spot Bitcoin ETFs made crypto far easier to hold inside a traditional brokerage account, which changed the practical access question for many investors. But the risks are real: extreme volatility, evolving regulation, security exposure, and no underlying cash flow to anchor a valuation.
If you're considering crypto, size it like a speculative bet. Many advisors who include it cap the allocation at 1% to 5% of total wealth, treating it as money you could lose without derailing the plan. Jeff has watched clients turn a sensible 2% crypto position into a 15% position through neglect, then panic when it dropped. The discipline is in the rebalancing, not the entry.
How Much Should You Allocate to Alternatives?
There's no universal number, but a common starting point for high net worth investors is 10% to 20% of the portfolio across all alternatives combined. Your right figure depends on total wealth, liquidity needs, risk tolerance, time horizon, and which alternatives you're using. The constraint that matters most is liquidity. Private equity and private credit can lock up capital for years, so they only fit if you won't need that money soon.
At Chesapeake Financial Planners, this is where the R.U.D.D.E.R. Method™ earns its keep. The R.U.D.D.E.R. Method™ is Chesapeake Financial Planners' six-step planning process: Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine. Sizing an alternatives sleeve runs straight through the Design and Develop and Reassess and Refine steps, because the allocation has to be set deliberately and then rebalanced on a schedule.
Beyond the headline three, high net worth investors can access private equity and private credit, hedge funds, managed futures, and infrastructure. Each carries its own minimums, fees, and lockup terms. The discipline is the same across all of them: name the job the investment is doing before you fund it. For a deeper look at how mix shifts over time, see How should my investment mix change as I get closer to retirement?.
Frequently Asked Questions
What are alternative investments?
Alternative investments are assets outside publicly traded stocks and bonds, including REITs, commodities, cryptocurrency, private equity, private credit, hedge funds, and infrastructure. They are used primarily to add diversification and lower correlation to public markets, not to maximize returns. Most carry higher fees and lower liquidity than traditional assets.
Are alternative investments worth it for high net worth investors?
Alternative investments can be worth it for high net worth investors when they solve a specific portfolio problem, such as inflation protection or low correlation to equities. They make less sense when added purely for novelty. The benefit only materializes if the position is sized correctly and rebalanced over time rather than left to drift.
How much of my portfolio should be in alternative investments?
A common starting allocation for high net worth portfolios is 10% to 20% across all alternatives combined, though the right figure depends on your liquidity needs, risk tolerance, and time horizon. Speculative assets like cryptocurrency are typically capped at 1% to 5% of total wealth, treated as money you could afford to lose entirely.
Are REITs a good alternative investment?
REITs can be a strong alternative investment because they offer liquid access to income-producing real estate and must distribute at least 90% of taxable income to shareholders. U.S. equity REITs have delivered roughly 8.75% in long-term annual returns. Their main drawback is sensitivity to interest rate increases, which can pressure prices and yields.
Should I include cryptocurrency in my investment portfolio?
Cryptocurrency may belong in a portfolio only as a small speculative allocation, often 1% to 5% of total wealth. It offers low correlation and scarcity but carries extreme volatility, regulatory uncertainty, and no underlying cash flow. Treat any crypto position as money you could lose entirely without damaging your overall financial plan.
Are alternative investments riskier than stocks and bonds?
Alternative investments often carry greater complexity, less liquidity, higher fees, and less regulatory oversight than stocks and bonds, which can make them riskier. Some, like infrastructure, can be relatively stable, while others, like cryptocurrency, are highly speculative. The risk varies widely by asset, so thorough due diligence is essential before committing capital.
If alternative investments sound relevant to your situation, our guide on building a diversified high net worth portfolio walks through the full framework. Download it at chesapeakefp.com to see how alternative investments fit alongside your core holdings.
Alternative investments involve specific risks that may be greater than those associated with traditional investments and may be offered only to clients who meet specific suitability requirements, including potential for complete loss of principal, liquidity constraints, and lack of transparency, among others.
Investments in real estate may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Other risks can include, but are not limited to, declines in the value of real estate, potential illiquidity, risks related to general and economic conditions, stage of development, and defaults by borrower.
Cryptocurrency is a highly speculative investment and involves a high degree of risk. Cryptocurrency is not legal tender and is not backed by any government. The value of cryptocurrency may fluctuate significantly. Cryptocurrency is not suitable for all investors and you should be prepared to lose your entire investment.
Commodities investing entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity.
Want to go deeper? Our R.U.D.D.E.R Audit for DIY Investors walks through this step by step.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
The fast price swings in commodities will result in significant volatility in an investor's holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
