- Wealth Stack Weekly
- Posts
- Your Portfolio Isn’t Diversified
Your Portfolio Isn’t Diversified
Your 60/40 allocation provides little downside protection. Here’s how to fix that.
Hi ,
Public markets have become one giant trade.
It doesn’t matter how “diversified” your portfolio is—when the S&P drops 5%, chances are everything you own drops with it. Stocks, bonds, crypto, even real estate REITs have begun to move in lockstep.
This is correlation at work—and it’s the silent killer of risk-adjusted returns.
In 2022, equities and fixed income posted their worst joint performance in over 50 years. The traditional 60/40 portfolio failed to deliver downside protection. And investors who thought they had balance realized they were holding two sides of the same coin.
This isn’t an isolated event—it’s the new normal.
We’re living in a macro regime dominated by central banks, geopolitical shocks, and high-speed flows of institutional capital. The result? A financial system where everything is connected—and nothing is safe from whiplash.
That’s why sophisticated investors are migrating capital into alternative assets.
Sophisticated investors aren’t chasing trends or novelty, they’re reallocating toward return streams that operate on a different rhythm—ones that don’t move in lockstep with Wall Street’s swings. They’re, non-correlated.
Private credit, direct real estate, energy royalties, equipment leasing, operating businesses—these assets don’t dance to the Fed’s music. They operate on different timelines, with different cash flow mechanics, and often, with direct contractual protections.
As correlation risk rises, the smartest investors aren’t just looking for alpha.
They’re looking for insulation.
This week, we’re breaking down exactly why non-correlation is the most overlooked advantage of the private markets—and how stacking the right alternatives can protect and compound your wealth when everything else is moving together.
We’ll cover:
Why traditional diversification is failing in today’s macro environment
What asset classes stay uncorrelated when markets fall
A case study that breaks down Tiger 21’s reallocation playbook
How Modern Portfolio Theory (MPT) broke, and how to fix it
A 3-step framework to assess correlation risk in your own portfolio
Let’s dive in,
Walker
P.S. Want to see how I’m personally investing in alts this month? Catch tomorrow’s live stream on our new offering, BuildLegacy I.
We’re leveraging my A+ real estate team to enter one of the most desirable neighborhoods in the Midwest — as the largest property owner from day one. We’ve engineered a fund where investors can join as LPs on the initial acquisitions and as Co-GPs on the strategic expansion.
Register HERE to save your seat.
Shift Your Stack: Escape the Correlation Trap
Why the Smartest Investors Are Getting Off Wall Street’s Ride
Here’s the deal:
Most people don’t have a portfolio.
They have a public market echo chamber.
Have you noticed when “the market” tanks—everything tanks?
Real diversification doesn’t live on Wall Street.
That’s the core reason the smartest investors are extending beyond public markets and flooding into alternatives.
What Happens When You Break Correlation?
You finally get real diversification—the kind that doesn’t disappear during a downturn.
You create a more stable income stack—with cash flow that isn’t dictated by stock prices.
You gain the ability to underwrite risk at the deal level—instead of trying to predict macro trends.
And you stop playing by the rules of a game designed for volatility, emotion, and fees.
The Correlation Trap:
Let’s look at what happens when your portfolio lives inside Wall Street:
Stocks down? Bonds used to be your hedge—until they weren’t (see: 2022).
Inflation spikes? Your dollars lose value—while your assets get whipsawed.
Recession talk? Every index dumps, regardless of fundamentals.
Market correlation spikes in times of fear. That’s the game most investors are stuck in.
But we’re not most investors, are we?
Alternatives Move Differently—By Design.
Private credit keeps paying when markets flinch.
Real estate holds its ground (or gains) in inflationary periods.
Cash-flowing businesses operate in real economies, not trading floors.
Oil & gas can run counter to equities—especially during global disruptions.
Alternatives are built for cash flow. Designed for separation. And wired to win when markets don’t.
That’s the Wealth Stack Philosophy:
Look for uncorrelated exposure with asymmetric upside.
Look for returns that survive economic storms.
Look for investments that work in any cycle.
The public markets are an emotional seesaw. But private markets offer something stronger: control, predictability, and a separation from headline chaos.
If you’re building a real portfolio—one that earns, compounds, and protects—uncorrelation isn’t optional. It’s fundamental.
So why does this problem keep happening?
Because the entire financial system is built on a theory that collapses when everything moves together.
BEHIND THE NUMBERS
Fix Modern Portfolio Theory with Alternatives
When Harry Markowitz introduced Modern Portfolio Theory (MPT) in 1952, he gave investors a gift: You could reduce risk without sacrificing return—if you held assets that didn’t move together.
That idea became gospel: Pair volatile growth assets (stocks) with stable income assets (bonds), and you get the “free lunch” of diversification.
But here’s the part that’s never advertised:
When stocks and bonds move together, the 60/40 strategy stops working. And that happens more often than you think.
The Real Problem:
Stocks and bonds don’t always hedge each other. In fact, they often fall together.
Case in point:
2022: Both posted double-digit losses—a first in over 50 years.
1970s: Inflation and energy shocks sent both asset classes tumbling.
1940s: War-driven fiscal policy and rate manipulation made both markets highly reactive.
Even parts of the Great Depression saw both decline amid liquidity crises.
What do these periods have in common?
Inflationary shocks. War-driven uncertainty. Regime shifts in monetary or fiscal policy.
Sound familiar?
That’s because we're living in exactly that kind of environment again—and that's why 60/40 isn't just outdated. It's fragile.
60/40's Weak Spots in History
In nearly every inflationary period shown below, the 60/40 portfolio underperformed, highlighting how traditional diversification often fails when inflation, war, or regime shifts take hold.
Here’s the move:
Rebuild MPT with uncorrelated alternatives.
The framework still works—if you feed it the right assets. Start by substituting fragile public assets with durable, private return streams:
The traditional 60/40 portfolio assumes correlation stays low. But in today’s market, everything moves together.
We need to feed MPT assets that don’t fail at the same time to keep it working.
Case Study: How Tiger 21 Beat the Correlation Breakdown
“Private investments are not just an allocation—they’re the foundation of wealth preservation in today’s environment.”
— Michael Sonnenfeldt, Founder & Chairman, Tiger 21
In 2022, both stocks and bonds posted their worst combined performance in over half a century. Most portfolios had nowhere to hide. But members of Tiger 21—a global network of ultra-high-net-worth investors—were already ahead of the curve.
While traditional investors clung to the 60/40 model, Tiger 21 members had already begun moving aggressively into private credit, real estate, and private equity, dropping their public equity exposure below 25% for the first time ever. In the past decade, private equity has grown from 10% to 30% of members’ portfolios. Why? Because they understood that in high-volatility, high-inflation regimes, the real risk isn’t loss—it’s correlation.
Their portfolios didn’t just survive—they kept generating yield, compounding off-market, and preserving optionality. It wasn’t about timing the crash. It was about owning assets that play a different game altogether. This represents the most significant shift in Tiger 21 members’ investment portfolios’ to date.
Surging interest rates and persistent inflation have weighed on private equity deals, valuations, and fundraising. But as Founder & Chairman Michael Sonnenfeldt has noted, Tiger 21 members are focused on the long game and prepared to play it through.
IN PARTNERSHIP WITH BUILD WEALTH
What if you could acquire all four corners of the best intersection in the city—and use it to launch a long-term portfolio?
Hey Reader, Walker here.
If you’ve been following along, you know I personally invest in every deal I bring out. We’re talking off-market opportunities with special terms — everything from American manufacturing companies to an oil well roll-up, a video game production studio, and real estate.
Over the last 12 months, our community has invested more than $22 million in opportunities across the Wealth Stack.
Now, we’re launching our next deal this Wednesday, July 9th at 4:00 pm Central (5pm ET).
Join us live HERE
This time, we’re leveraging my A+ real estate team to enter one of the most desirable neighborhoods in the Midwest — as the largest property owner from day one. We’ve engineered a fund where investors can join as LPs on the initial acquisitions and as Co-GPs on the strategic expansion.
BuildLegacy I is our newest real estate investment opportunity: an 11-property portfolio in the Central West End.
CWE combines walkable charm, institutional demand, and a built-in moat of historic zoning and limited supply—making it one of the Midwest’s most compelling real estate submarkets.
This is a chance to co-own an irreplaceable mix of historic, cash-flowing assets, strategic add on acquisitions—plus the only developable parcel of its kind in the core of CWE.
This first acquisition seeds a 10-year, neighborhood-scale investment company focused on control, cash flow, and compounding value.
Join the Live Deal Drop: Wednesday, July 9th @ 5pm EST
Location: Virtual (Zoom)
Target Returns: 20%+ IRR | 5x Equity Multiple | 10-12% preferred return
Founding Round: $4.5M Raise Closes early August
THE PLAYBOOK
3-Step Framework: Measure Correlation in Your Wealth Stack
Step 1: Classify Every Asset by Type and Exposure
Create a simple table of your current portfolio. For each holding, label:
Asset Class (e.g., public equity, real estate, private credit)
Public vs. Private
Cash-Flowing vs. Appreciation-Based
Tied to Interest Rates? (Yes/No)
Correlated to S&P 500? (High / Medium / Low)
Tip: If you can check its price on CNBC, it’s probably highly correlated
Step 2: Analyze Historical Correlation Patterns
Compare how each asset performed during past market stress events:
2022: Inflation + rate hikes
2020: COVID crash
2008: Financial crisis
2000: Dot-com bust
If your portfolio dropped across multiple categories at the same time, your diversification might be an illusion.
Tip: Many private assets (credit, direct real estate, royalties) held steady—or even outperformed—during these periods.
Step 3: Rebalance with Intentional Diversification
Start stacking uncorrelated, cash-flow-first alternatives:
Add private credit or equipment leases to reduce rate risk
Layer in real estate or energy royalties for inflation resistance
Allocate to growth equity or secondaries to reduce public equity overexposure
Tip: The goal isn’t just to own “different” assets—it’s to own assets that don’t fail at the same time.
Mindset Shift: Correlation Is the Silent Risk
The old hedges don’t hedge. The old diversifiers don’t diversify.
It’s all one trade—and it moves in sync.
Find appreciating assets that have cash flow.
Think: Private credit, private real estate, private equity, non-operating royalties or IP. They all create syncopation with the S&P, and each other.
Low volatility and non-correlation are the underlying benefits that keep your investments compounding and on track.
That’s the benefit of alternative investing.
"The lack of money is the root of all evil."
Mark Twain