Beyond the 60/40: Smarter Portfolio Construction for Today's Investor
Investor interest in alternatives has surged in recent years. The market conditions that supported simple stock-bond portfolios have shifted, with inflation risk and volatility on the rise and bonds becoming less predictable. Meanwhile, the alternatives landscape itself has changed, opening up strategies and vehicles that were once reserved for institutional investors to a much broader audience.
Director of Alternative Investments Nicholas Bzovi has spent over two decades advising foundations, endowments, and high-net-worth families across capital markets, institutional consulting, and private wealth. He leads Ducere’s private markets strategy, helping clients navigate today’s more complex investment environment. We asked Nick to offer his perspective on the evolution of alternative investments and what modern portfolio construction looks like today.
Q&A with Nick Bzovi, Director of Alternative Investments at Ducere Wealth
The 60/40 portfolio has been the backbone of mainstream investing for decades. Is it broken?
Nick: I would not say broken or obsolete. I would say it is less self-sufficient than it used to be. The classic stock-bond mix was especially powerful during the long disinflationary era when bonds often rallied as equities sold off. That inverse correlation was the engine behind the model's resilience.
That relationship is less dependable today. Inflation risk has re-entered the system, interest-rate volatility is higher, and policy uncertainty is elevated. The stock-bond correlation turned positive more often than investors were accustomed to during the 2000–2020 period. BlackRock has explicitly described this as a new regime shaped by higher macro and rate volatility, and J.P. Morgan noted that rate volatility made even balanced portfolios bumpier in 2025.
The 60/40 model still works as a starting point. The question is whether it's enough on its own in this environment.
Q: Why is the relationship between stocks and bonds less reliable now?
Inflation has shifted from a background risk to an active concern, which changed how the bond market behaves. When inflation expectations rise, bond prices fall at the same time equities can also be under pressure, so you lose the cushion you were counting on.
Rate volatility has compounded this. Higher and more volatile rates created more turbulence in fixed income. Policy uncertainty, both monetary and fiscal, added another layer. The result is that bonds have been doing less of the heavy lifting they once did in a diversified portfolio.
That doesn’t mean we should ignore bonds; it just means the portfolio needs other tools to do the jobs that bonds used to handle alone.
Q: When investors hear "alternatives," they often picture hedge funds or complex private equity structures. What alternatives are most accessible and relevant for individual investors right now?
The alternatives universe has expanded considerably. Most of what is relevant for individual investors today is not the traditional drawdown fund requiring a $5 million minimum and a 10-year lockup.
The most accessible and relevant alternatives right now fall into three buckets. First, public real assets like REITs and infrastructure. Second, liquid alternatives like managed futures, macro strategies, or market-neutral funds. Third, semiliquid private-market vehicles, particularly interval funds and evergreen structures that provide access to private credit, private equity, private real estate, or multi-asset private strategies. Morningstar and CAIA both point to semiliquid and evergreen vehicles as the main channel making private-market exposure more accessible.
If I had to prioritize for most non-institutional investors today, I would put private credit, real assets, and selective liquid diversifiers ahead of private equity. Investors are looking for income, inflation resilience, and diversification. The goal is solving a specific problem, not adding complexity for its own sake.
Q: How much of a portfolio should go toward alternatives? Is there a rule you follow?
I would start with a principle, not a percentage. Allocate to alternatives based on the job they are supposed to do. Are you trying to add income? Reduce equity beta? Improve inflation sensitivity? Increase after-tax efficiency? Access a less efficient opportunity set? The allocation should follow the objective.
In practice, for many investors coming from a simple stock-bond mix, a first-time allocation of roughly 10–20% is a sensible starting range. For more sophisticated households with long time horizons, strong cash-flow coverage, and a genuine ability to tolerate illiquidity, that number can go higher.
J.P. Morgan's 2026 long-term capital market assumptions highlight a "60/40+" framework with 30% in diversified alternatives as improving projected returns and Sharpe ratio versus a simple 60/40. I treat that as an illustration, not a rule. The real guardrail: do not let illiquidity outrun your liquidity budget. Strategic asset allocation and liquidity planning have to be central to any decision involving illiquid investments.
Q: Let’s shift to direct indexing. Most people have heard the term but may not understand exactly what it is. Can you explain in plain terms?
Direct indexing is simply owning the underlying stocks of an index in your own separately managed account, rather than owning the index through an ETF or mutual fund. The portfolio is constructed to behave similarly to a benchmark, but because you directly own the individual securities, the manager can customize holdings and trade them one by one.
BlackRock describes it as seeking benchmark-like exposure through direct ownership of individual stocks, with the goal of delivering after-tax benefits and personalization. Direct ownership creates flexibility that a fund structure can’t offer.
Q: What does that flexibility let you do?
Three things, mainly:
First, ongoing tax-loss harvesting at the individual-stock level. Because you own each security separately, you can realize losses on individual positions without exiting your overall market exposure.
Second, customization around concentrated positions or values-based exclusions. If you hold a large position in a single company, a direct index can be built to underweight or exclude that stock so you are not doubling up on that risk.
Third, more tax-sensitive transitions into or out of appreciated holdings. For someone sitting on a low-basis position, a direct index can be a smarter way to deploy or transition capital without triggering a large tax bill all at once.
Q: What does tax-loss harvesting do for an investor’s bottom line?
The tangible benefit is the ability to turn market volatility into tax assets. Realized losses can offset realized capital gains, and if losses exceed gains, the IRS allows up to $3,000 of excess net capital loss against ordinary income per year, with additional losses carried forward to future years. That means less tax paid now, more capital left invested, and potentially better after-tax compounding over time.
Where investors go wrong is assuming this only matters in bear markets. BlackRock reported that even in a strong 2025 market, its direct-indexing platform still harvested substantial losses because dispersion among individual stocks created opportunities. The best candidates for this strategy are investors with sizable taxable accounts, ongoing realized gains, high tax brackets, or concentrated low-basis stock they need to work through.
Q: Are there pitfalls investors should watch for?
Yes. The wash-sale rule is the main constraint. The IRS generally disallows a loss if you sell a security and buy the same or a substantially identical security within 30 days before or after the sale. So this is a portfolio-management discipline, not just a year-end tax trick.
Done well, it requires continuous monitoring and thoughtful security selection when replacing sold positions. If not, it can create wash-sale violations that eliminate the very benefit you were trying to capture. This is one reason direct indexing is most effective when managed by a team with the tools and discipline to implement it properly.
Q: What’s the biggest misconception you hear from investors about alternatives?
That "alternatives" is a single asset class. It isn’t. Private credit, infrastructure, managed futures, core real estate, venture capital, and hedge funds do not belong in one bucket just because they aren’t traditional stocks and bonds. The CAIA Association notes that evergreen structures can differ materially in terms, fees, accessibility, and liquidity even within the same category.
A second misconception is that alternatives are inherently superior because they sound exclusive. They aren’t better by definition. They’re useful when the structure, liquidity profile, fees, and expected role in the portfolio are aligned with the investor's objectives. For a sophisticated investor, the right question is never "Should I own alternatives?" It is "Which alternative exposure, in which vehicle, for what purpose, with what liquidity terms, and at what total cost?"
It’s that level of specificity that separates a thoughtful allocation from one that adds complexity without adding value.
Nicholas Bzovi, CFA®, CAIA®, CGMA®, is the Director of Alternative Investments at Ducere Wealth, where he leads the firm's private markets strategy and shapes investment philosophy across the private markets landscape.
The information contained in this article is provided for informational and educational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice.
All investments involve risk, including the possible loss of principal. Diversification and asset allocation strategies do not guarantee profit or protect against loss in declining markets. Alternative investments, including private credit, private equity, real estate, infrastructure, hedge funds, and other private market strategies, may involve higher fees, greater risk, limited transparency, and reduced liquidity compared to traditional investments and may not be suitable for all investors.
Strategies such as direct indexing and tax-loss harvesting depend on individual tax circumstances and applicable tax rules. Investors should consult their tax advisor regarding their personal tax situation.
References to third-party sources, including BlackRock, J.P. Morgan, Morningstar, or CAIA, are for informational purposes only and do not imply endorsement. Ducere Wealth does not guarantee the accuracy or completeness of third-party information.
Ducere Wealth is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. Additional information about Ducere Wealth, including its Form ADV, is available at www.adviserinfo.sec.gov