5 Asset Allocation and Diversification Strategies for Pre-Retirees

March 31, 20237 min read
5 Asset Allocation and Diversification Strategies for Pre-Retirees
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • To slash overall investment retirement portfolio risk, it is important to have assets in various industries, classes, and geographic regions, and that are not highly correlated to one another.
  • As people age, the less they can afford dramatic market swings — a key reason to include alternative investments in one’s retirement portfolio.
  • How conservative, moderate, or aggressive one should be in establishing their retirement portfolio depends in part on the investor’s age.

The point of portfolio asset allocation is to identify the proper combination of investments across stocks, bonds, cash, and alternatives that align with one’s financial goals. After all, well-crafted portfolios help generate more consistent returns. Add retirement to the equation, and the importance of asset allocation and diversification is compounded.

The following are key allocation and diversification strategies for pre-retirees.

Retirement Asset Allocation

Conventionally, retirement asset allocation is the diversification of one’s retirement account across stocks, bonds, and cash.

However, it is increasingly popular to make room for alternative investments – basically anything other than the above assets — which can produce steady secondary income and mitigate overall portfolio risk.

It is never too early to begin revising one’s pre-retirement portfolio. The average person can expect to live 18 to 20.5 years after retiring at 65, according to the U.S. Social Security Administration, so the goal should be long-term security. And as people age, the less they can afford dramatic market swings — a key reason to add alternative investments to one’s retirement portfolio. Because of their low correlation to the stock market, they are not as subject to volatility.

In addition to risk tolerance, how one ultimately allocates retirement assets depends on their financial goals and investment time horizon.

Ultimately, financial advisors widely recommend that key components of a modern retirement portfolio include a diversification of stocks and bonds, cash, and alternative investments such as real estate. Each asset class has a different level of risk and returns.

Retirement Portfolio Examples

How conservative, moderate, or aggressive one should be in establishing their retirement portfolio depends in large part on the investor’s age.

For example, because they have the advantage of time, younger people – those in their 20s and 30s – can afford aggression in their investments. This can mean making maximum use of an IRA and 401(k), focusing more on growth stocks, and avoiding slow-growing assets such as bonds.

A person in their 40s may want to consider a more moderate approach — unless they are just beginning to save for retirement. In that case, they will need to put capital in aggressive assets to help avoid the effects of inflation. Generally, though, this demographic should not be careless. Rather, they should consider investments that historically have generated returns, while continuing to max out their 401(k) and IRA.

Because people in their 50s and 60s are nearing retirement age, and will soon need their retirement savings, it is recommended that they invest more conservatively. Many individuals in this demographic may wish to get professional advice about pivoting to more low-earning, stable funds such as money markets or bonds. They also may want to put more money into their retirement accounts.

The Importance of Portfolio Diversification

To slash overall investment portfolio risk, it is important to have assets in various industries, classes, and geographic regions, and in assets that are not highly correlated to one another. If a portfolio consists of a mix of investments, the subpar performance of one can potentially be offset by another asset’s better performance. While no investment portfolio is risk free, diversification can offer a better chance for more consistent returns overall.

Note that while the classic investment portfolio split is “60/40” – 60% stocks and 40% bonds – such a strategy may be passed. Many financial advisors are instead suggesting that 20% of holdings, with most of it derived from fixed-income assets, go to less-volatile alternative assets. This is discussed in more detail later.

Stocks, Bonds, Cash Equivalents

Most experts agree that stocks, bonds, and cash equivalents make for a solid foundation for retirement portfolios. But like any investment, there are risks involved.

In simple terms, stocks, also called equities, represent shares in a company’s ownership. One of the riskiest investments, stocks can lose value – all of it, possibly – if market conditions sour.

Meanwhile, bonds serve to lessen the volatility of stocks and generate dependable income. The chief risk with bonds is that the issuer may default on a payment or more before the bond matures.

The category of cash equivalents include bank CDs, U.S. Treasury bills, corporate commercial paper, bankers’ acceptances, and other money market equivalents. While such financial instruments generally carry low risk, they are not exempt from it. For example, short-term government bonds are at risk of inflation and interest rates. They also are at political risk – the possibility that returns could suffer due to a country’s political changes or instability.

Alternative Investments for a Diversified Retirement Portfolio

Basically any asset class excluding stocks, bonds, and cash, alternative investments are increasingly popular as ways to avoid public market volatility, and gain passive income, when putting together a diversified retirement portfolio.

Online alternative investment platforms such as Yieldstreet, for example, offer wide-ranging, highly vetted, and curated opportunities in assets such as real estate, art, marine projects, and commercial, with low minimums available. Yieldstreet also offers an IRA to which alternatives can be added.

As with anything else, there are pros and cons of including alternative investments in a retirement portfolio. Pros include low correlation to the stock market, the potential for better returns, and the ability to use one’s expertise, such as in art or real estate.

Downsides may include low liquidity, since most alternative investments are private, as well as complexity, a lack of regulation, and the potential for higher fees.

How to Build a Retirement Portfolio

There are various ways to craft a retirement portfolio, after assessing one’s financial goals and risk tolerance, some of which may be based on age. Note that all retirement portfolios will need periodic review as investors age and needs change.

5 essential strategies should include:

  1. Establishing a timeline. The age at which one wishes to retire should serve as the starting point for any future plans.
  2. Estimate spending needs. As a baseline, it is crucial to establish what one realistically wants their post-retirement income to be.
  3. Consider tax implications. Investment options such as IRAs allow the investor to be taxed now or in the future when funds are withdrawn.
  4. Find a balance between risk and return. Regardless of one’s age when retirement planning begins, it is important to assess risk tolerance. Generally, the closer one is to retirement, the more risk-averse they should be when establishing a portfolio.
  5. Create an estate plan. It is essential to take the necessary legal steps to decide how assets will be distributed upon the investor’s death.

As a tool, wise asset allocation can generally diversify one’s retirement holdings by spreading out any risk. In fact, diversification is key to any successful investment portfolio.

Invest in Alternative Assets

Get consistent returns in times of market volatility.

Alternative Investments and Portfolio Diversification

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments. This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.

To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. Learn more about the ways Yieldstreet can help diversify and grow portfolios.


Pre-retirees and those in early retirement would do well to be proactive and take charge of their retirement planning. A carefully allocated and diversified portfolio, with components that include alternative investments, can help minimize losses while still benefiting from potential gains.

After all, the last thing one wants to concern themselves with upon retirement is having sufficient capital to fund it.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, Orum.io and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure