Access to more alternative investments is making it easier to diversify your portfolio

February 07, 2025 at 11:28 AM EST

One of the big stories in the financial services world has been the development of new products and alternatives for investors looking to diversify their portfolios beyond U.S. stocks. That could be particularly important as Trump 2.0 policies fuel volatility in the markets, says Liz Ann Sonders, chief investment strategist at Charles Schwab and Company.

I recently spoke with Sonders on my Money Life podcast.

“I think it’s a great set of innovations that have occurred, and Schwab has been part of some of that, with expanding access to alternatives to individual investors relative to years or decades past, where to have access to alternatives — whether it’s hedge funds or private equity or private real estate — meant you had to have millions of dollars,” Sonders told me.

“And we’re part of hopefully breaking down some of those barriers and allowing individual investors to have more access to other asset classes, almost the ability to take a foundation or endowment approach to their portfolios versus maybe decades ago asset allocation being thought of as stocks, bonds, cash — three asset classes,” she said.

Traditionally, owning bonds has been the way to hedge a stock portfolio, as bond prices and stock prices historically move in opposite directions. But more recently stocks and bonds have been more likely to rise and fall in unison, negating their diversification advantage. Alternative investments can fill that gap, Sonders said.

Although U.S. stocks still look like the No. 1 place to invest, Sonders said you do want to have international diversification.

“That’s not the same thing as saying ‘dump all your U.S. exposure and back up the truck and load up on all things international.’ There have been pockets around the world — not just on the equity side of things, but things like Chinese bonds — that have performed quite well in the past,” she said.

“In a very broad sense, the U.S. continues to do well. I think this is an environment where having some international diversification makes sense. Our bias has been a little bit more on the developed international side as opposed to the emerging market side, but there are opportunities even there as well,” she said.

As for the impact of Trump’s second administration on the market, you can look to his first time around for clues. Sonders said.

“There’s a lot of pages being ripped out of the Trump 1.0 playbook for investors trying to gauge what’s going to happen this time. I think the pages around 2017 may be a little less relevant time this time versus the pages from 2018,” she said.

“If you remember, we would all wake up every day in 2018, and you’d immediately go to what at the time was the Twitter feed to see what are we going to hear today from a trade-war perspective and from a terrorist perspective.

“And those could be big volatility drivers in the short term and major move drivers in the short term of the individual stocks or companies most affected. And I think that’s something with which we’re going to be dealing,” she said.

Listen to the full interview with Liz Anne Sonders

More Money Life with Chuck Jaffe: How climate change and geopolitics tie into your bond investments

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Access to more alternative investments is making it easier to diversify your portfolio

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