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Featuring

Chris Galeski, Director of Growth and Advice and Partner, Morton Wealth

Jeff Sarti, Chief Executive Officer and Partner, Morton Wealth

Seven years ago, roughly $7 trillion was invested in alternative assets globally. Today that number is $18 trillion. By 2030, Fidelity projects it will exceed $30 trillion. The average institutional investor already allocates 25 percent of their capital to alternatives. The average retail investor allocates about 5 percent. That gap is not an accident.

In this episode of Financial Commute, Chris Galeski sits down with Jeff Sarti to break down what alternative investments actually are, why the industry's standard answer does not go far enough, and what the next 40 years of investing may look like for people who are still relying solely on stocks and bonds to get them there.

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Key Takeaways

• Everything in investing is ultimately either a stock or a bond, including alternatives. Jeff reframes the definition: rather than describing alternatives as anything that is not a stock or bond, he argues that alternatives simply expand the universe of things you can own equity in or lend against. A real estate loan is still a bond. A stake in a private healthcare company is still a stock. The difference is access and diversification of that access.

• Traditional diversification does not hold up when it is needed most. In normal markets, spreading across sectors and geographies inside public stocks and bonds gives the appearance of diversification. But in market crashes, correlations go to one. 2008 and 2020 both showed that when things get bad, all public assets tend to fall together. 2022 added a new data point: the broad bond index fell 13 percent in the same year that stocks fell, removing the last layer of protection traditional portfolios relied on.

• From 1980 to 2022, stocks and bonds produced strong results almost by accident. Falling interest rates from the mid-teens down to near zero over four decades created a Goldilocks environment where both asset classes benefited simultaneously. Warren Buffett and Bill Gross, the two best investors of that era, succeeded in completely different asset classes because the macro tailwind lifted both. That environment is unlikely to repeat, and building a portfolio as if it will is a meaningful risk.

• Complexity in alternatives is often misidentified as unfamiliarity. The reason most people avoid alternatives is not that they are genuinely more complex than public stocks. Jeff points out that Apple's 10-K is arguably more complex than a loan on a simple real estate property. The real barrier is familiarity. The industry has conditioned investors to see public stocks and bonds as default and everything else as exotic, when the underlying logic of the investments is often more intuitive.

• Healthcare royalties are one example of an alternative that is genuinely uncorrelated to the economy. When Morton Wealth invests in a royalty stream tied to pharmaceutical or medical device sales, the income from that investment is not affected by interest rate decisions, recession risk, or geopolitical events. Someone taking medication continues taking it whether the Fed raises rates or the stock market falls 20 percent. That kind of uncorrelated income is what true portfolio resilience looks like in practice.

Key Moments from This Episode

0:00 – Intro: in 2022, stocks and bonds both fell at the same time
1:00 – Welcome and today's topic: the rise of alternatives
1:37 – From $7 trillion to $18 trillion: how fast the alternatives market is growing
2:15 – What is an alternative? Everything is either a stock or a bond
4:33 – The supermarket analogy: why limiting yourself to stocks and bonds is like only shopping in one aisle
8:00 – True diversification: why traditional stocks and bonds failed in 2022
10:50 – The Goldilocks era: why the last 40 years won't look like the next 40
12:34 – Healthcare royalties: one of the most resilient alternative investments
14:20 – Downsides of alternatives: too much money chasing mediocre products
16:34 – Complexity is a myth: a loan on a simple business is easier to understand than Apple's 10-K
19:13 – Closing take: don't be intimidated by alternatives, just expand your options

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Questions This Episode Answers

What are alternative investments?

Alternative investments are any investment outside of publicly traded stocks and bonds. That includes real estate, private equity, private credit, infrastructure, commodities, hedge funds, and more specialized strategies like healthcare royalties or royalty streams from intellectual property. Jeff reframes the definition in this episode: rather than thinking of alternatives as something exotic, they are simply the same two fundamental choices, owning equity or making a loan, applied to a broader universe of assets beyond what trades on a public exchange.

Why are alternative investments growing so fast?

Alternatives grew from roughly $7 trillion globally in 2012 to $18 trillion by 2024, and Fidelity projects the market will reach $30 trillion by 2030. The growth reflects a few converging trends: the recognition that traditional stocks and bonds are increasingly correlated in tough markets, the search for income in a world where traditional bonds have underdelivered, and the gradual democratization of access to strategies that were previously available only to institutions and ultra-high-net-worth investors.

Do alternative investments actually reduce risk?

They can, but only if the alternatives you hold are genuinely uncorrelated to public markets. The key word is correlated. In a market crash, most public assets fall together regardless of how diversified the holdings appear across sectors or geographies. True diversification requires assets whose performance is driven by entirely different forces. A healthcare royalty stream tied to medication sales does not fall because the stock market falls. A loan secured by a real estate property generates income regardless of what the Fed does with interest rates. That kind of reduced correlation is what provides actual downside protection.

Why are alternatives considered complex or risky?

Jeff's answer is that complexity is often confused with unfamiliarity. Most people have spent their investing lives inside the world of public stocks and bonds, so anything outside that world feels more complicated by comparison. But as Jeff points out, reading the full financial statements for a company like Apple is genuinely more complex than evaluating a loan secured by a simple piece of real estate. The structural complexity of some alternative investments is real and requires expertise to navigate, but the underlying logic of owning something or lending against it is not inherently harder to understand than picking a public stock.

What is wrong with just owning stocks and bonds?

Nothing, in isolation. The issue is what the last few decades may have hidden. From 1980 to roughly 2022, interest rates fell from the mid-teens to near zero, which created a rising tide that lifted both stocks and bonds simultaneously. Chris and Jeff describe this as a Goldilocks environment that rewarded even undifferentiated portfolios. In 2022, that tide turned: the broad bond index fell 13 percent in the same year that stocks fell significantly, which was historically unusual. If the next 40 years look different from the last 40, a portfolio built solely on public stocks and bonds may be missing meaningful sources of income, diversification, and downside protection.

What is a healthcare royalty investment?

A healthcare royalty investment involves providing capital to a pharmaceutical or medical device company in exchange for a percentage of the revenue generated by a specific drug or device. The investor earns income as a royalty stream tied to sales, rather than holding equity in the company itself. Morton Wealth uses this as an example of a genuinely uncorrelated alternative because demand for medication does not change based on interest rates, economic cycles, or stock market conditions. Someone who needs a drug continues taking it regardless of what markets are doing, which makes the income stream relatively stable and predictable.

Why This Matters for Investors Whose Portfolios Are Built Entirely on Stocks and Bonds

Most retail portfolios were built during the 40-year period when stocks and bonds moved together in the right direction. That period is not guaranteed to repeat. Understanding what alternatives are, why institutions allocate 25 percent of their capital to them, and what genuine diversification looks like beyond the traditional 60-40 framework is the starting point for building a portfolio that can hold up in a wider range of environments.

• Investors approaching or in retirement who are holding significant bond allocations and have not revisited whether those bonds are providing the protection they were originally intended to provide
• Anyone who has heard the word alternatives and reflexively associated it with complexity or risk, and wants a plain-language explanation of what the category actually includes and why it exists

At Morton Wealth, alternatives are not an add-on to a traditional portfolio. They are a core part of how we think about building portfolios that generate income, protect on the downside, and do not depend on a single macro environment to perform. If you are curious about whether your current portfolio has meaningful access to this asset class, that is exactly the conversation to start with your advisor.

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Disclosures: Information presented herein is for discussion and illustrative purposes only and is not intended to constitute financial advice. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax, or legal advice. You should consult with your financial professional, accountant, or tax professional before implementing any transactions or strategies concerning your finances.