Most passive investors believe that if they choose good markets, diversify their holdings, and invest in deals with strong projected returns, long-term success will naturally follow. On paper, the strategy makes sense. In reality, many of these investors still underperform over time.
So what’s going wrong?
According to Bob Fraser, CFO and Chief Macro Strategist at Aspen Funds, the issue isn’t deal selection—it’s perspective. Investors are trained to focus on returns instead of structure, assets instead of operators, and performance instead of volatility. That mindset, he argues, is exactly what separates average investors from billionaires and family offices.
In a recent episode of Ritter on Real Estate, Bob joined me to break down how sophisticated investors actually allocate capital and how everyday investors can apply those same principles without needing billionaire-sized resources.
A Different Way to Think About Investing
Bob Fraser brings more than a decade of experience managing alternative investments across private credit, commercial real estate, distressed debt, and energy. Aspen Funds oversees more than $700 million in assets and has distributed over $85 million to investors. He is also the co-host of the Invest Like a Billionaire podcast and co-author of the USA Today bestselling book of the same name.
Despite this background, Bob’s message is surprisingly simple: headline returns don’t matter nearly as much as investors think.
Projected IRRs and glossy spreadsheets may look impressive, but they are ultimately promises. What determines long-term success—or failure—is how well a portfolio manages downside risk.
Why Volatility Matters More Than Returns
One of the most misunderstood concepts in investing is volatility. Bob refers to its long-term impact as “volatility drag,” and it explains why investors with higher average returns can still end up worse off.
Consider two investors. One earns a steady 9% annual return for 30 years. A $100,000 investment grows to roughly $1.3 million. The second investor alternates between gains of 50% and losses of 30%, producing a higher average return on paper. After the same 30 years, that investor ends up with only about $200,000.
The difference is volatility.
Losses are disproportionately damaging. A 50% loss requires a 100% gain just to break even. Sophisticated investors understand this math and prioritize loss prevention over upside chasing.
Diversification Isn’t Enough
Many investors assume they are diversified because they own the S&P 500 or a mix of public equities. In practice, most public assets are highly correlated.
A small group of large technology companies makes up a significant portion of the S&P 500, and when markets sell off, nearly everything moves together. Even REITs often show strong correlation to equities, despite being fundamentally different assets.
True diversification requires more than owning many things—it requires owning assets that behave differently under stress.
This is where uncorrelation becomes critical. Assets that zig when others zag can dramatically reduce portfolio volatility and protect long-term compounding.
The Case for Alternatives
Private alternative investments play a key role in reducing volatility and emotional decision-making. Because they are priced less frequently and are not traded daily, investors are less likely to react to fear and greed.
Each alternative asset class also brings unique strengths to a portfolio. Real estate, for example, is a powerful inflation capture vehicle, especially when paired with long-term fixed-rate debt. Private credit, on the other hand, offers predictable cash flow and typically sits higher in the capital stack, reducing downside risk.
Bob highlighted Aspen Funds’ preferred equity strategy as an example—targeting equity-like returns while maintaining a more defensive position than common equity. The result is steady income with significantly lower volatility than traditional equity investments.
Why Structure Beats Strategy
Investors often debate strategies: multifamily versus industrial, value-add versus development, or one asset class versus another. Bob argues that these debates miss the bigger picture.
What matters more than individual strategies is portfolio structure.
He compares portfolio construction to building with Legos. Each investment serves a purpose—income, inflation protection, growth, or capital preservation. When structured correctly, the portfolio can withstand underperformance in any single area without derailing long-term results.
Start with Measurement
Before making any changes, investors need clarity. Bob recommends starting with a simple but often overlooked step: measuring current allocation.
Many investors are surprised to discover how concentrated they truly are once they see their holdings laid out objectively. Without this baseline, it’s impossible to rebalance effectively or make disciplined decisions about new investments.
Operator Risk is the Real Risk
In private markets, who you invest with matters more than what you invest in. The difference between top-tier operators and poor ones can be dramatic.
One of the most effective ways to assess alignment is co-investment. Sponsors who invest meaningful personal capital alongside their investors are far more likely to fight through difficult periods and protect downside risk. When operators only participate through fees or carried interest, incentives can break down when deals get challenging.
Bob was clear: the worst investments he has made were those where alignment was weak, even when the underlying assets looked attractive.
Looking Ahead
From a macro perspective, Bob sees compelling opportunities emerging in several areas, including industrial real estate driven by reshoring trends, select oil and gas assets with strong cash-on-cash returns, and Midwest multifamily markets where fundamentals remain solid and pricing has adjusted.
Timing matters. Patience and discipline are often the greatest advantages an investor can have.
Final Thoughts
Three lessons stood out from this conversation:
1. Operator risk matters more than asset risk
2. Volatility quietly destroys compounding
3. Strong portfolio structure protects investors when individual strategies fail
Investing like a billionaire isn’t about chasing higher returns—it’s about building a resilient portfolio designed to survive cycles and compound steadily over time. For investors willing to rethink how they allocate capital, the results can be transformative.