As a long-standing supporter of the “endowment model,” I’ve spent decades balancing my enthusiasm for active management and alternative investments against my theory- and evidence-based belief in indexing. But my advocacy of alternatives has been targeted to institutions and ultra-high net worth investors. The recent embrace of so-called liquid alternatives by ordinary Americans seeking to fund their retirement is deeply troubling.
I will start with a broad definition of alternative investments and describe their “liquid” manifestation. Next, I summarize the reasons why I’ve encouraged the most sophisticated investors to explore alternatives as potential enhancements to their portfolios. I then turn to the central question of whether that makes sense for those with less than $10 million in assets.
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