This might sound crazy, but…

If you have not yet read Part 1 of this blog and/or watched the corresponding video, you need to begin with one of those; it lays the groundwork for why a familiar 60 / 40 mix of stocks and bonds may no longer provide the ballast it once did. What follows digs deeper into how a carefully calibrated blend of low-cost index funds, modest leverage, and genuinely diversifying assets may temper volatility while still pursuing long-term growth. The goal is not to chase exotic returns; rather, it is to make diversification meaningful in today’s market environment, where correlations often spike exactly when we need diversification most.

Why Update a Classic Strategy?

For decades, advisors could quote Modern Portfolio Theory (MPT) and call it a day: mix assets with low correlation, rebalance yearly, and history suggested you might enjoy a smoother ride. Yet the practical tools of that era; largely U.S. stocks, international stocks, and a range of bonds; have evolved in ways MPT’s early architects could scarcely imagine. Market structure, indexing, and global capital flows have pulled many assets into tighter alignment; during stress events like March 2020, equities of all stripes fell together, and long-dated Treasuries briefly moved in the same direction. There are many such examples of this phenomenon over the last two decades.

At the same time, markets have become more accessible. Exchange-traded vehicles now open doors to asset classes that were once reserved for institutions. Managed futures, commodities indexes, and systematic market-neutral funds are no longer fringe. Ignoring these tools may leave a portfolio relying on correlations that no longer behave the way textbooks promise. By modernizing the toolkit, we may restore the risk-reducing power that MPT envisions; without abandoning its core principle.

Leverage as a Seat-Belt, Not a Turbocharger

Leverage sometimes sparks visions of speculative bets; however, the implementation here is intentionally modest. Suppose a traditional portfolio valued at $100,000 calls for $50,000 of stock exposure and $50,000 of bond exposure. In our approach, a single low-cost fund may provide that same $100,000 exposure while only tying up, for example, $50,000 of cash. The remaining $50,000 is then available to invest in an array of more diversified holdings. Importantly, most of the leverage in the fund is centered on the bonds, with far less applied on stocks.

This measured leverage may introduce new mechanics; margin requirements, financing costs, and potential margin calls; but it does so at the fund level; not directly with you. Additionally, the margin does not magnify the dollar exposure beyond what a non-levered portfolio already targets. Instead, it frees the remaining dollars for assets that may zig when stocks and bonds zag. From a risk lens, we have traded traditional market risk for a combination of financing-cost risk and derivative-structure risk; yet the overall volatility of the entire portfolio may be lower because those freed-up dollars now sit in uncorrelated strategies. Critically, this style of leverage is materially different than the toxic strategies we read about that offer 2x, -2x, or even more extreme levered returns to the daily swings of an underlying investment. Those “strategies” (gambles) tend to decline in value consistently over time in all but only the most unusual of market environments (when a market trends in one direction consistently day after day). This is not that.

Beyond Stocks and Bonds: Broadening Diversification

Once core exposure is efficiently replicated, capital can be redeployed into holdings that historically have moved to their own rhythm. Candidates include:

Commodities and gold
Real Estate
Managed-futures or trend-following strategies that seek gains in both rising and falling markets
Market-neutral or merger-arbitrage funds that lean on spreads, not market direction
Esoteric hedge fund strategies
Other “real” assets – think artwork, for example
Short-duration Treasury bills or cash-equivalents to preserve dry powder

Each category carries its own set of risks; liquidity, regulatory oversight, or potentially muted returns in benign markets; but their correlations to global stocks have tended to be low or even negative over full cycles. By blending several of these, we seek to avoid dependence on any single alternative driver. Importantly, the aim is not to outperform stocks when stocks soar; it is to dampen the dips, providing psychological and mathematical resilience when equity sentiment sours. We still believe that stocks will be the long-term driver of wealth generation for decades to come; that is why we still maintain our full intended stock exposure.

Facing the Fee Question Head-On

Alternative funds almost always print higher line-item expense ratios than index stock or bond funds. This reality can draw quick condemnation from fee-focused commentators. The key is context: if an alternative allocation displaces a portion of a portfolio that would otherwise be in cash or bonds, its incremental cost must be weighed against the volatility it may shave off and the flexibility it may add.

Moreover, access and liquidity now command a premium. A public-market managed-futures ETF may charge 0.75 percent, but that compares favorably to traditional limited-partnership hedge funds that once required high six-figure minimums, multi-year lockups, and 2 percent management fees plus performance incentive fees. In other words, costs have come down dramatically even as transparency has improved. The remaining fee drag can be viewed as the price of admission to asset classes that were previously off-limits. It is my belief that access to these investment strategies will continue to decline in price over the coming years.

Why This Approach May Fit BigLaw Attorneys

BigLaw partners and associates often juggle irregular cash flows: quarterly draws, unpredictable bonuses, and sizeable tax-payment deadlines. Volatility in personal portfolios can compound that stress, especially when distributions coincide with market downdrafts. A strategy that seeks to mute large equity swings may help keep near-term liquidity plans intact; avoiding forced sales at inopportune moments.

Further, time is scarce. Delegating portfolio construction to a rules-based framework that emphasizes risk control and systematic maintenance may free attorneys to focus on billable hours, business development, or family time. The complexity happens under the hood; what the attorney experiences is a steadier trajectory toward long-term goals, paired with clear documentation of the trade-offs involved.

Implementing Modernization: Practical Considerations

Start by defining your target exposures in stocks and bonds; ensure any leveraged proxy is sized so that, after leverage, the dollar exposure matches what a non-levered allocation would hold. Work with an advisor or custodian that offers transparent, low-cost derivative or fund solutions; margin policies and interest rates vary widely. We choose to get this all done within a single tool: A low-cost Exchange-Traded Fund (ETF).

Next, build an “alternative sleeve” with clear roles for each position. A managed-futures fund may handle trend and crisis alpha. A commodities fund may offer inflation sensitivity. Real-estate exposure may address income and inflation-hedging goals. Document how each sleeve is expected to behave in various economic regimes so that inevitable periods of underperformance do not trigger knee-jerk exits. Again, we prefer to use tools like ETF’s and mutual funds to achieve these exposures, until and unless a client has enough capital to invest directly in the real things (buy an apartment complex; invest in an institutional-grade hedge fund with $100k+ investment minimums; buy physical commodities and store them; etc.).

Finally, revisit the mix at least annually. Because correlations and volatilities shift over time, the allocation that works today may drift out of balance tomorrow. Disciplined rebalancing (often funded by dividends and interest rather than forced sales) may keep the modernization on track without adding unnecessary tax drag.

Final Thoughts

Portfolio modernization does not abandon Modern Portfolio Theory; it embraces its spirit while acknowledging that asset behaviors evolve. By combining modest leverage with a broader palette of uncorrelated assets, investors may reclaim the diversification benefits that simple stock-bond mixes once delivered. No allocation promises a painless ride, and leverage introduces novel risks that demand respect; yet when thoughtfully engineered, the strategy may lower overall volatility and enhance the likelihood of staying invested through inevitable storms. As always, investors should weigh costs, liquidity constraints, and personal risk tolerance before making changes, and past performance may not predict future outcomes.

Get in Touch: Contact@ConcertPlanning.com

Schedule a Call