For most of their existence, U.S. Treasuries have played the role of the steady parent in the investment family—reliable, predictable, and always there when the stock market threw a tantrum. Recently, the short duration Treasuries have paid you a respectable 4.5%–5.5% annually, provided ballast during equity selloffs, and generally asked for little in return.
But times have changed.
Today, a 2-Year Treasury pays only about 3.9% and even the 10-year Treasuries yield is only around 4.3%… and there’s a growing sense they could drift even lower if the economy softens or the Fed starts cutting. While those yields are certainly nowhere near nothing, it’s also not exactly the same rock-solid stabilizer they have been at most points in the past. So where does that leave a balanced portfolio?
If the traditional 60/40 model is starting to creak under modern market pressures, what should take the place of “safe” assets?
Let’s unpack that—without throwing the baby (or the bond market) out with the bathwater.
What Does “Balance” Really Mean?
When we talk about balance, most people picture a tidy pie chart: 60% stocks, 40% bonds. But in reality, balance is less about ratios and more about risk behavior. It’s the art of constructing a portfolio where your holdings zig and zag at different times—so that the whole thing doesn’t sink when one asset class springs a leak. To that end, we spend as much time thinking asset correlation as we do allocation.
It’s also about consistency of income. A balanced portfolio should deliver cash flows that can be relied on across different cycles—whether from interest, dividends, or distributions. And let’s not forget liquidity. Some assets balance market risk beautifully but come with a catch: they are hard to get out of. So the real craft of balance is blending liquid and illiquid assets, volatile and steady ones, income generators and growth drivers.
In this low-yield environment, achieving true balance might mean leaving behind some of the traditional assumptions and building something more nuanced, more customized—and, ideally, more resilient.
The Dollar Factor: Why It Matters Now
Another piece of this puzzle that investors often overlook is the value of the U.S. dollar. When you invest in U.S. Treasuries or corporate bonds, you’re not just buying yield—you’re also taking a position (even if only somewhat) on the strength of the dollar. A “strong dollar” boosts the relative value of your bond interest, particularly for international investors – which is not highly relevant to most of our clients. But even for U.S.-based clients, it makes U.S. fixed income more attractive on the global stage—demand goes up, prices rise, yields drop. Conversely, a weakening dollar can erode real returns, especially after inflation.
In a global portfolio, allocating heavily to dollar-based bonds exposes you to currency risk even if the underlying credit is sound (e.g. investment grade bonds). If the Fed cuts rates while other central banks stay tight, the dollar could slide—making Treasuries less compelling both in yield and purchasing power. So, while not typically a primary focus, the U.S. dollar is the silent variable in every U.S. bond allocation, and it should be part of the conversation when rethinking assets that are often associated with the less volatile or stable part of a balanced portfolio.
So What’s the Alternative?
Let’s look at four asset categories that may help carry the balance torch forward (there are more but we will highlight these for now). Note that some of these alternatives may not be right for everyone or all portfolios of course – as that determination depends on need for current income, risk tolerance, risk capacity, investment horizon, etc. With that said, although these alternatives each have their own set of risks just like bonds do, they are certainly worth exploring.
1. Dividend-Growth Stocks
Not all equities are created equal. Dividend-growth stocks—companies with strong balance sheets and a history of raising their dividends—can be a middle ground between safety and growth. A steady payor of dividends typically signals to the market that a company is financially sound… in addition to the “built-in” return of the dividend payment itself.
Think of dividend-growth stocks as “bonds with upside.” While they come with equity risk, their income tends to be more tax-advantaged than bond interest, and they offer a natural inflation hedge. Plus, during periods of declining rates, these stocks often outperform as investors seek yield alternatives.
Bonus: In volatile markets, these stocks are often less sensitive to panic selling than high-growth, zero-dividend tech plays.
2. Private Credit
Private credit is one of the fastest-growing corners of the investment universe—and for good reason. These are loans made to private companies, often floating rate and secured by real assets or cash flow. In exchange for illiquidity, investors can earn yields of 8–10%, often with lower default risk than high-yield bonds. As traditional lenders (mostly banks) are reducing the number/amount of outstanding loans, the private market is filling the gap.
This strategy doesn’t trade daily like a bond ETF, which can be a plus during panic-driven volatility. However, investment managers do need to vet the private credit managers and understand the structure—transparency and underwriting quality matter a great deal here. This alternative can be a bit tricky but it might also offer an opportunity to be a part of the solution to help balance a portfolio. While we do not have exposure to private credit alternatives at this time, it is an asset class we are actively exploring.
Bonus: Floating-rate private credit can actually benefit when interest rates rise—rare for a fixed-income alternative.
3. Defensive Options Strategies
One example of a defensive options strategy is a covered call – and, specifically, an in-the-money covered call. Much like other “fixed income alternatives,” this strategy does still have price volatility – after all it is no “free lunch” like a U.S. Treasury – but that volatility is compensated through call premiums. As an aside, I believe the plural of premium is premia… but I just cannot bring myself to use the word premia, so I am going with premiums.
A covered call strategy is a way of selling a desired level of return on a holding in exchange for money on day 1. The strategy can be very precisely calibrated for the investor’s desired risk appetite (and, therefore, return goals).
This strategy is vulnerable to a substantial market drop but has downside mitigation through the current call premiums. The most frequent objection to a covered call strategy is that it is not exactly tax efficient. However, that can be entirely alleviated if the strategy is in a tax-advantaged account (e.g. IRA, Roth IRA, etc.)
Bonus: These strategies add unique risk/reward profiles to a portfolio, which can actually reduce overall volatility when used in moderation… and allow a portfolio to remain invested during volatile markets.
4. Real Assets & Infrastructure
Real assets are physical and durable—think toll roads, airports, data centers, and renewable energy infrastructure. Many of these are governed by long-term contracts with inflation-linked revenue. They’re not immune to market cycles, but typically they behave differently than financial assets. Publicly traded real asset funds offer liquidity, while private infrastructure projects can offer even more stable returns in exchange for a longer lock-up. Real estate and infrastructure has long been viewed as alternative assets that provide an inflation hedge and income that is not correlated to equity and bond markets.
Bonus: These assets tend to shine during inflationary periods or supply-driven shocks—exactly when stocks and bonds can struggle.
The Bottom Line
It is not only the equity or “risk-on” portion of a portfolio that takes thought and strategy. The balance in a portfolio can be complex as well and a willingness to explore beyond the traditional ideas is important. Like we have had over the past handful of years, sometimes the asset allocation can be straightforward. However, those days might well be in the rear-view mirror and, if so, we need to be open to alternatives… the right alternatives. Yes, bonds still matter—but they no longer carry the whole weight of portfolio stability. And with the valuation of the dollar, inflation, interest rates, and geopolitical volatility all in play, diversifying your definition of “safe” might just be the safest move of all.
At East Franklin Capital, we build portfolios that balance not just growth and income, but risk, liquidity, and the volatility that comes with so much uncertainty. While immediate changes may not be imminent, please know that we are committed to evaluating ALL assets in your portfolio – and will continue to keep that commitment in the future. We do not know where markets (stocks, bonds, real estate, etc.) will be in a month or a year or beyond but we can stay focused, disciplined, and engaged and look to remain invested during this time of market ambiguity.
