People are so much smarter than financial professionals sometimes give them credit for.

I’m constantly being told to simplify things and make it easier for the lay person to understand, but two calls this week were very encouraging for me.

Both were with families with $20M+ who already understood concepts like modern portfolio theory and the efficient frontier and wanted to diversify their portfolios without giving up too much in expected returns.

It is SO much easier for me to communicate investment philosophy and what the heck we are trying to do at QFS when someone has that knowledge.

The diversification or ballast for most portfolios are bonds, which have lower expected returns than stocks and are not tax efficient. Muni bonds are tax efficient, but their yields are lower, so that doesn't work either.

My preference is to think more broadly.

Instead of relying on two primary return streams (stocks and bonds) why not try to own a portfolio with many different sources of return and many different types of risk?

That can include:

• Stocks
• Bonds
• Real estate
• Infrastructure
• Equity long/short
• Managed futures
• Global macro
• Private equity
• Private credit

None of these are risk-free, but the risks aren’t the same!

If you can combine investments whose returns are driven by different forces, the portfolio may be able to maintain an attractive expected return while becoming less dependent on any one market environment.

Take that free lunch people!