Four Ways to Manage Investment Risk

Beyond standard stock and bond diversification, high-net-worth investors are increasingly allocating capital to alternative investments to hedge against public market volatility. Private market assets like private equity, private credit, and real estate are common choices, offering return drivers that are not directly tied to the fluctuations of public indices. For 2026, popular alternative strategies include multifamily real estate syndications, which are projected to yield 12-18% IRR, and private credit funds with an expected yield of 8-12%. These options provide income streams that are often independent of public market movements. However, these investments typically involve multi-year lockup periods, a significant consideration for liquidity. The economic outlook for 2026 includes a forecast of sturdy global growth, with Goldman Sachs projecting 2.8%. In the U.S., J.P. Morgan Asset Management anticipates another year of economic resilience which should support risk assets, though they note that middle-income consumers may feel more pressure. The Federal Reserve is expected to continue a shallow path of easing interest rates, with 2-3 cuts anticipated through 2026. Recent market behavior has highlighted ongoing volatility. For example, in early August of the previous year, the Dow Jones experienced its worst decline in two years, dropping over 1,000 points on August 5th. During this period, the VIX volatility index, often called the "fear gauge," spiked to levels not seen since the pandemic era. This market choppiness is driving some investors towards more complex hedging strategies. The use of derivatives, such as purchasing put options to protect against sharp declines in an asset's market value or using futures contracts to lock in prices, is a common approach for sophisticated investors to offset potential losses. Platforms like Willow Wealth, which has handled over $6 billion in investments, and Fundrise are increasing access to alternative assets for accredited investors. These platforms offer investments in private, high-growth technology companies and a variety of other alternative assets, including real estate and private credit. Regulatory bodies are also paying closer attention to the expanding private markets. The Basel Committee has noted the boom in "significant risk transfers," where banks pay private funds to take on the risk of their loan books, indicating a need for continued supervision in this evolving landscape. Ultimately, the goal of these strategies is to construct a portfolio that can weather various economic conditions. By combining traditional investments with alternatives and employing sophisticated risk management techniques, investors aim to achieve more stable returns over the long term.