White Coat Investor Podcast #456: Alternative Investments with Larry Swedroe

Date: January 29, 2026 | Host: Dr. Jim Dahle | Guest: Larry Swedroe

Episode Overview

In this deep-dive episode, Dr. Jim Dahle welcomes renowned financial author and investment researcher Larry Swedroe for a wide-ranging discussion on alternative investments. The conversation explores why alternatives should (or shouldn't) be considered by high-income professionals alongside traditional assets, examines the pros and cons of popular alternative categories—like private real estate, private credit, reinsurance, and even cryptocurrencies—and provides candid, research-based guidance for investors seeking to build more resilient, diversified portfolios.

Key Discussion Points & Insights

The US Stock Market: Is It a Bubble? (08:16–15:52)

• AI Bubble and Growth Valuations:
  Dr. Dahle asks if current US stock market conditions, especially the dominance of large-cap tech ("Mag 7"), indicate a bubble.
• Swedroe's Response:
  • Swedroe argues we’re not at bubble territory akin to the late 1990s tech bubble. He defines a bubble as when equity valuations are dramatically higher than risk-free real returns (e.g., TIPS yields), which is not the case today.
    • “It's very hard to call it a bubble because we're not at levels that I think define a bubble.” (09:01, Swedroe)
  • High current market P/E ratios mean investors should temper expectations for future real returns.
  • Difficulties in timing markets are highlighted: “Valuations are only good predictors at the very long term, not the short term.” (13:57, Swedroe)
  • High-growth tech firms are becoming more capital-intensive, raising doubts about their ability to sustain past profitability and returns.

The Need for Diversification: Not Just the S&P 500 (15:52–24:33)

• “Just Buy the S&P 500?”
  Dahle observes that investors have become enamored with US large caps, ignoring small value, international stocks, and bonds.
• Swedroe’s Take:
  • Recency bias and overconfidence lead investors to overweight what’s recently performed well.
  • Historical performance cycles show long periods when the S&P 500 has underperformed even T-bills; patience and discipline are vital.
    • “The investor's worst enemy is usually staring them in the mirror… they're subject to recency bias.” (16:50, Swedroe)
  • International and emerging value stocks have delivered strong returns recently despite being shunned.
  • Swedroe personally “sins a little” around the edges (e.g., slightly overweighting emerging/international stocks), but steers clear of large bets or market timing.

A Framework for Alternative Investments (24:33–38:27)

• Swedroe’s Book on Alternatives:
  Originally included assets like emerging markets (which now seem mainstream), reflecting how investment landscapes shift.
• Problems with Alternatives in the Past:
  • High-fee structures (“2 and 20”) of private assets, hedge funds, and similar vehicles left scant excess return for investors.
  • “The sponsors were taking all of the benefits in their fee structure…” (26:23, Swedroe)
• Recent Improvements:
  • New vehicles (AQR, Stoneridge) offer institutional strategies to individuals at lower fees and without “carry.”
  • These strategies (e.g., long-short factor funds, reinsurance) have shown strong historical returns but with equity-like drawdowns—requiring strong stomachs and discipline.
    • “Both of those strategies... experienced really bad runs for three years... But... if you stayed the course.” (28:45, Swedroe)
  • Swedroe now allocates ~57% of his portfolio to alternatives, given accessible liquidity premiums for those willing to give up daily liquidity.

Deep Dive: Real Estate as an Alternative (25:48–38:27)

• Public vs. Private Real Estate:
  • Public REITs offer liquidity and low fees but are tax inefficient.
  • Private real estate offers an illiquidity premium and tax efficiency (e.g., return of capital treatment in Blackstone’s funds).
    • “Blackstone was the first to come out with a product that wasn’t 2 and 20…” (31:33, Swedroe)
  • Swedroe invests only in broad, diversified private real estate portfolios—no interest in direct rentals due to hassle and lack of diversification.
• Infrastructure as an Alternative:
  • Swedroe recently added an infrastructure fund (Hamilton Lane), citing even lower correlation to standard market risks than real estate.
  • Between real estate and infrastructure, he allocates ~15% of his portfolio.

Private Credit & Open Architecture (36:08–38:27, 54:27–59:45)

• Preference for Funds Over Direct Lending:
  • Swedroe chooses private credit vehicles run by open-architecture firms (like Cliffwater), giving exposure to a diversified pool across managers, sectors, and geographies.
  • Persistent performance in private markets means manager selection matters—unlike in public equity.
  • Swedroe avoids funds concentrating too much in any one loan or issuer.

Bitcoin, Crypto, and Gold: Swedroe’s Unvarnished View (38:27–45:29)

• Categorical Dismissal:
  • “No...None of them. Nothing? No Bitcoin? No Ether? No. Nothing.” (38:55, Dahle/Swedroe)
  • Argues crypto lacks fundamental logic (unlimited supply, zero-sum nature), comparing buying Bitcoin to playing the lottery.
    • “The argument that there’s a limited supply of Bitcoin is specious. There’s an unlimited supply of things that could do exactly the same thing.” (39:34, Swedroe)
  • Feelings reinforced by two of Swedroe’s respected peers: John Cochrane and Eugene Fama.
• Gold’s Role:
  • Gold can work as a short-term safe haven, but its long-term performance and inflation hedging are unreliable.
    • “In 1980, gold was at 850 [per ounce], 2002 it was 270 and inflation averaged over 4% a year. So you lost 86% of your money in real terms.” (42:44, Swedroe)
• Preferred Alternatives:
  • Sees more robust value in things like reinsurance and private credit, offering double-digit uncorrelated returns.

Reinsurance: The Classic “Uncorrelated” Alternative (45:29–54:27)

• Reinsurance’s Appeal:
  • Offers high expected returns, sometimes >20% (due to recent capital outflows after drawdowns), and extremely low correlation to stocks and bonds.
  • Swedroe owns ~15% of his portfolio in this category.
    • “Every investor should own reinsurance. It should be 10% or so. Five at a minimum. I own about 15%.” (47:43, Swedroe)
  • Self-healing risk profile: Premiums soar and underwriting tightens after catastrophe years, creating cycles of opportunity.
  • Feels fees, while high, are justified in this market due to specialized expertise.

Complexity, Liquidity, & Simplicity in Portfolio Construction (64:43–67:31)

• Simplicity Overplayed?
  • Swedroe challenges the notion that portfolios with a few alternatives are truly too complex.
    • “You mean to tell me the average person, that seven funds is way too complex and hard to deal with. To me, that's ridiculous.” (66:09, Swedroe)
  • Maintains that, for most, a handful of funds (US/international equity, a few alternatives, some bonds for liquidity) ought to be manageable.

“Enrich Your Future”: Swedroe’s Latest Book (67:31–71:06)

• Who Should Read It:
  • Anyone struggling to make sense of financial theory or markets, especially those put off by technical jargon.
  • Uses analogies from sports, cooking, and other everyday life to illustrate investment concepts (e.g., point spreads in betting equated to P/E ratios).
• Notable Quote:
  • “If you want to make cookies sweeter, you add a little bit of salt, not sugar. Well, same thing applies in investing. You can add a risky asset... and by adding it, you actually reduce the risk of the portfolio because it’s uncorrelated...” (69:46, Swedroe)
  • Swedroe offers to personally answer readers’ follow-up questions by email or through social channels.

Notable Quotes & Memorable Moments

• Bubble Analysis:
  • “It's very hard to call it a bubble because we're not at levels that I think define a bubble.” (09:01, Swedroe)
• Recency Bias Warning:
  • “The investor's worst enemy is usually staring them in the mirror…” (16:50, Swedroe)
• Crypto Dismissal:
  • “No... None of them. Nothing? No Bitcoin? No Ether? No. Nothing.” (38:55, Dahle/Swedroe)
• Gold as an Inflation Hedge Myth:
  • “In 1980, gold was at 850, 2002 it was 270 and inflation averaged over 4% a year. So you lost 86% of your money in real terms.” (42:44, Swedroe)
• The Case for Complexity:
  • “You mean to tell me the average person, that seven funds is way too complex and hard to deal with. To me, that's ridiculous.” (66:09, Swedroe)
• Book Accessibility:
  • “Anyone who reads my book and has any questions about it can always reach out to me on LinkedIn or X or my Substack account, and I'm happy to answer any questions.” (70:38, Swedroe)

Key Timestamps

• 08:16 – Assessing the US stock market "bubble"
• 15:52 – Diversification beyond the S&P 500; the role of patience and history
• 24:33 – Good, bad, ugly: How to (not) pick alternatives
• 25:48 – Real estate alternatives: public/private, taxes, practicality
• 36:08 – Why Swedroe prefers diversified, managed vehicles
• 38:27 – Bitcoin, crypto, and gold: Why Swedroe says “no”
• 45:29 – Why Swedroe loves (private) reinsurance and its self-healing returns
• 54:27 – Private credit: how it works, real risks, and opportunities
• 64:43 – Satisficing vs. optimizing in portfolio design; is complexity overrated?
• 67:31 – Swedroe’s approachable new book and reader Q&A offer

Final Thoughts

Swedroe emphasizes that the world of alternative investments has shifted—mainly due to reduced fees, improved access, and product innovation—but core principles endure:

• Diversification matters.
• Recency bias and overconfidence are persistent enemies.
• Alternatives can play a pivotal role, but only when sized (and understood) appropriately.
• High returns in alternatives always come with risks—be honest about your need for liquidity and do due diligence.

Swedroe’s “lean” toward alternatives is practical, not dogmatic: use the tools available, in moderation, tailored to your personal needs and capacities.

• “Have patience, stay disciplined.... It's impossible to time these things.” (24:21, Swedroe)

For listeners: Swedroe is available for investment questions via Substack, X, and LinkedIn. His latest book offers financial wisdom in story form for both laypeople and professionals.