In the world of investment strategy, diversification remains a bedrock principle. But the way we achieve that diversification is due for a rethink.
For decades, the classic 60/40 portfolio—60% stocks, 40% bonds—was the go-to framework for long-term investors. It was simple, cost-effective, and empirically supported. But we’re now navigating a market landscape that looks nothing like the one in which that model was born. Structural changes in the economy, behavioral changes in investor dynamics, and new innovations in portfolio construction all suggest that it may be time to consider modernizing the way we diversify.
This post is about that evolution.
Why This Conversation Matters Now
The core idea behind diversification is to own investments that don’t move in lockstep. The classic assumption was that when stocks go down, bonds hold steady or go up—providing ballast during rough markets.
But that relationship hasn’t held up as well in recent decades. Analogous to how New York and Paris have grown more similar over time due to globalization, similar effects have been seen in the investment world. In fact, during many periods of volatility—like 2022 and parts of the 2000s—both stocks and bonds declined together. That undermines the protective power of the traditional 60/40 mix.
And the challenges go beyond simple correlation. Market structure has changed dramatically:
Trades now happen in milliseconds, not minutes or hours
The same global macro events ripple through multiple asset classes simultaneously
Retail access to investing has exploded, creating more “risk-on/risk-off” swings
In short: Stocks and bonds increasingly act like one asset class in a downturn.
The Case for Rethinking Simplicity
I’ve spent most of my 20-year career encouraging clients to favor simplicity and low fees. And to be clear—I still believe in the value of keeping things simple where possible. But I also believe we do ourselves a disservice if we ignore how markets have evolved.
Blind allegiance to simplicity can re-introduce one of the most well-discussed risks out there: the risk of being under-diversified. In a world where traditional diversification no longer provides the buffer it once did, investors may need to look beyond the basics to achieve a better investing experience.
Looking Beyond the 60/40 Portfolio
So where do we go from here?
A natural next step is to consider alternative investments—strategies and asset classes that behave differently than traditional stocks and bonds. These may include:
Private equity: Often illiquid and opaque. Glamorous in theory, but my general opinion is that this is not a great diversifier, because private companies and public companies should be valued the same by investors. It’s just that the private companies aren’t valued every second of every day via a public stock exchange, and so they have the appearance of lower volatility.
If you are an equity Partner at your law firm, then you are already investing in Private Equity.
Private credit: Lending to businesses outside the traditional banking system. Yield-focused, but may be exposed to hidden credit risks. This is another one I don’t love.
Real assets: Tangible things like real estate or commodities. They may be harder to access, but may offer strong diversification benefits.
If you own a home and have a mortgage, you have leveraged exposure to real assets.
Hedge fund-style strategies: A broad category, ranging from nonsense to sophisticated. Some of these can meaningfully diversify a portfolio.
Managed futures and market-neutral strategies: Statistically among the most diversifying, but frequently dismissed due to complexity and marketing baggage.
Alternatives come with trade-offs: high fees, illiquidity, limited access, and complexity. For most investors, they have been too costly or opaque to justify replacing part of their stock and bond allocation.
The Innovation That Changes the Game
Until recently, one of the biggest hurdles to incorporating alternatives was this: you had to sell your stocks or bonds to make room for them.
That’s a problem. Because if you believe (like I do) that stocks are the most efficient long-term engine for wealth, why would you want to reduce that exposure?
The breakthrough came in the form of fund structures that allow you to retain full stock and bond exposure while layering in diversifying strategies—without needing to sell your core portfolio. These funds use what I believe to be prudent leverage and derivatives to maintain your full traditional market exposure while freeing up capital to invest elsewhere.
Leverage: The Tool That Makes It Work—But Requires Respect
Let’s talk about leverage. It’s a scary word for many, but it doesn’t have to be—if it’s used intelligently.
A good analogy is a mortgage. You could buy a home in cash, but you often borrow part of the purchase so you can use your capital elsewhere. If your home appreciates, your return on invested cash is magnified.
Investment funds can do something similar. By using a portion of your capital to gain full exposure to stocks and bonds via derivatives, the remaining capital can be allocated to diversifiers like real assets or market-neutral strategies.
But make no mistake: leverage introduces risk. Two big ones stand out:
Cash drag: Funds must hold cash as collateral, which may limit upside in strong markets.
Margin calls: In steep market drops, funds may need to sell assets to cover exposure, amplifying losses.
The key is to distinguish between strategic leverage (used to enhance diversification) and reckless leverage (used to chase returns with concentrated bets). We’re talking about the former.
Why This Isn’t Investment Heresy
If your first reaction is, “Isn’t this all way more complicated than it needs to be?”—I hear you. In fact, if you were a prospective client and brought me an account statement showing a bunch of expensive, illiquid, complex investment funds I would assume you’re being taken advantage of by a financial salesperson that has used complexity as a selling tool to sell you things that pay them a high commission.
That’s why this is a scary blog to write, and why I’m focusing so much on the truths around risk and costs. The difference in this case is that I am paid strictly for my advice - I receive zero compensation for the sale of any investment products, including these alternative strategies. These are my genuine opinions.
I’ve built my career on principles of evidence-based investing. But the evidence has changed. The assumption that stocks and bonds alone provide sufficient diversification is, in my opinion, less valid today than it was decades ago.
And if we can now access thoughtful diversification through funds that preserve our core market exposure, reduce some of the old trade-offs, and offer better risk-adjusted outcomes—shouldn’t we at least consider it?
What This Means for BigLaw Attorneys
As an attorney in BigLaw, your financial complexity is often higher than most:
You may earn large bonuses that throw off tax planning
You might hold concentrated equity in your firm (if you’re an equity Partner)
You often juggle long hours and high demands with limited time to focus on financial decisions
A modernized portfolio may help solve a key problem: how to better protect and grow wealth in a global, correlated, and volatile market.
This is especially relevant if you’re:
Nearing partnership or navigating K-1 income
Accumulating significant cash flow with few traditional diversifiers
Trying to reduce stomach churning volatility in your investment accounts.
Conclusion: Adapting Without Overreacting
We’re not tossing out the old playbook. But we are editing it.
Diversification still matters. But how we achieve it may need to evolve. Thanks to innovation in fund structure and investment strategy, we now have tools that allow us to maintain our stock/bond core while thoughtfully layering in other exposures. The result may be reduced portfolio volatility and more resilient long-term performance.
This isn’t about making a bet. It’s about making a plan—and making that plan work in a world that no longer plays by the old rules.
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