Four Alternative Investment Avenues to Help Strengthen Your Portfolio in 2025

By Carl Ludwigson

The days of the traditional 60/40 portfolio are long behind us. Diversification is the key for long-term portfolio growth, but with so many options to diversify, it’s growing increasingly more complicated for investors to determine where to allocate in alternatives.

Alternatives can provide enhanced returns and diversification benefits compared to traditional asset classes. Taking 2022 as an example, both stocks and bonds suffered when inflation and interest rates spiked, while alternatives like private credit benefited from Fed rate hikes due to the floating rate nature of the underlying loans.

For high-net-worth individuals and families, choosing the right alternative investments isn’t only about risk management—it’s also a strategic path to portfolio returns. With such an expansive range of alternatives available, finding the right assets that balance growth, income, and stability is crucial.

Here are four types of alternative investments that we find offer the highest potential for returns while helping to mitigate risk: private equity, private credit, real estate, and infrastructure.

1. Private Equity

Private equity is a very effective vehicle for long-term capital appreciation. Within private equity, we partner with specialists who can add operational value to portfolio companies rather than large generalist buyout funds that tend to rely on leverage to generate returns. By selecting funds with a hands-on approach to portfolio companies, we can enhance growth potential and stability of returns.

2. Private Credit

Private credit is another favored asset class, providing diversification and the opportunity for income generation. Our allocation to private credit is typically split between semi-liquid direct lending funds and drawdown vehicles with opportunistic mandates, allowing clients to benefit from higher yields with varying levels of liquidity.

As the Fed reduces short term interest rates, we expect the starting yield of private credit to come down, but this also improves interest coverage ratios which may reduce future default risk. 

3. Real Estate

Real estate investments offer additional benefits, especially tax advantages. By focusing on sectors such as multi-family housing, industrial properties, and hospitality, investors can capture both income and capital appreciation while potentially benefiting from depreciation tax shelters.

Opportunities in niche areas like logistics, hotels and lodging, data centers, and medical facilities are also growing as technology and demographics evolve. Investors should pay attention to lease structures in these types of investments; for example, shorter lease terms or sectors like hospitality—where hotels can adjust room rates frequently—allow for income adjustments that can keep pace with inflation. This flexibility makes certain real estate assets particularly attractive during inflationary periods.

4. Infrastructure

The availability of open-ended funds that invest in private infrastructure assets has made access easier for retail investors in a space that has been historically limited to institutional investors with a longer time horizon. These investments can provide predictable cash flows as they are often backed by government or corporate contracts with inflation-linked revenue adjustments. 

As global infrastructure needs increase, especially in sectors like clean energy, digital infrastructure, and transportation, infrastructure presents a strategic avenue for investors seeking long-term, resilient income sources and growth potential.

High-net-worth individuals and families looking to diversify their portfolios should evaluate alternative investments as a pathway to diversification for their portfolios based on specific liquidity needs, risk tolerance and other circumstances. It’s an exciting time to be in the market, and alternatives are a rapidly evolving source of that excitement as we look forward to the prospects of market growth in 2025.