How adding alternative assets can help deliver added income, without added risk
With rising health care costs, persistent inflation and Canadians living longer in retirement, the pressure on retirement portfolios to deliver dependable income is intensifying. A $1 million retirement portfolio constructed solely from traditional assets such as stocks, bonds and cash which aims to generate no more than a 4.5% rate, or roughly $3,750 per month.
For many retirees, that level of income is not enough. A $5,000 monthly income requirement, for example, implies a 6% yield on a $1 million portfolio. Achieving that solely through traditional asset classes often forces investors into uncomfortable trade-offs: taking on additional risk by adding high-yield bonds or dividend-heavy equities, or increasing withdrawal rates in a way that undermines long-term sustainability.
There is, however, another path. By incorporating alternative assets, particularly liquid alternatives, portfolios may be positioned to deliver higher income without meaningfully increasing overall risk. In practical terms, this approach can help generate an additional $15,000 per year on a $1 million portfolio while maintaining a more resilient risk profile.
For illustrative purposes only.
Source: Morningstar December 2025. All portfolios are constructed using Dynamic funds (Series F) to represent a balanced high-income allocation. All portfolios are before commissions and advisor fees. Trailing Twelve Months (TTM) 12-month yields and 5-year portfolio standard deviation used for risk.
Distributions may consist of net income, dividends, net realized capital gains, and/or return of capital. Distributions are not guaranteed, and investors should not confuse a fund’s distribution yield with its performance or rate of return.
Figure: Cash flow rate versus risk
This chart illustrates how portfolios incorporating alternative assets have historically delivered higher cash-flow yields with lower volatility compared with traditional portfolios alone.
When yield matters, consider the alternatives
Once the exclusive domain of institutional and high-net-worth investors, alternative investments have become increasingly accessible to investors across Canada as they can be used to diversify portfolios and access new investment strategies.
Major pension funds in Canada and the United States, such as the Canada Pension Plan (CPP) and Yale University1, have successfully used alternative assets for decades to manage risk and diversify income streams.
A closer look at liquid alternatives
While there is a broad range of alternative assets, including less liquid investments like private equity and hedge funds, the focus of this article is specifically on liquid alternatives, which combine the liquidity and transparency of mutual funds with much of the investment flexibility of hedge funds.
Because they rely on alternative sources of returns, liquid alternatives can offer investors the potential for diversification, decreased volatility, and attractive risk-adjusted returns – independent of traditional stock and bond markets. Key alternative strategies that can deliver diversified retirement income include: options, long-short credit, and real estate investment trusts (REITS).
Unlocking more income: Five key criteria for alternative assets
- Track Record: The Proof is in Performance. Only employ alternative funds with a verifiable track record, managed by experienced portfolio managers skilled in using alternative strategies across various market cycles.
- Sustainable Yield: Can It Keep Paying? Does the alternative fund boast a clear and consistent history of delivering sustainable cash flow for the foreseeable future?
- Liquidity: How Quickly Can You Cash Out? Ensure the assets can be redeemed promptly if a capital withdrawal is necessary.
- Diversified Income Streams: Is Your Income Truly Diverse? Opt for assets offering diversified income streams with low correlation to the existing portfolio, thereby enhancing overall diversification potential.
- Lower Capital Drawdowns: How Does It Weather the Storm? Select alternative assets that behave differently from the rest of the portfolio in both rising and falling markets, helping to mitigate overall portfolio risk.
Upgrading your portfolio’s yield: Before and after
Sticking to traditional asset classes limits investors to the modest yields of bonds and dividend-paying stocks, as seen in Figure 1. For those seeking higher returns, incorporating alternative asset classes – such as options, real estate, long-short, absolute return and structured credit – may be a game-changer.
Figure 1: Traditional paycheque portfolio
A traditional income-oriented portfolio composed primarily of fixed income and dividend-paying equities.
Figure 2: Paycheque portfolio with alternatives
As seen in Figure 2, integrating alternative income producing assets into a traditional portfolio aims to enhance income and potentially reduce volatility. This strategy is ideal for investors aiming for income yields above 4%.
When yield matters: Six funds to consider
Dynamic Premium Yield Fund and Dynamic Premium Yield PLUS Fund
The Funds feature a flexible investment strategy focused on acquiring quality U.S. equities at attractive valuations while also generating stable income through an options writing strategy, and delivering systematic downside protection and capital preservation. Premium Yield PLUS uses moderate leverage to potentially enhance total returns.
Dynamic Alternative Yield Fund
The Fund has a unique asset mix, including both publicly listed alternative assets and select private-capital investments.
By providing an attractive monthly income stream through investing in alternative assets, the Fund seeks to provide lower overall volatility than equity markets.
Dynamic Real Estate & Infrastructure Income II Fund
Providing a high level of monthly income using a moderate level of leverage, the Fund provides access to a portfolio of real estate and infrastructure assets through primarily publicly traded companies globally.
Dynamic Credit Absolute Return Fund
With its ability to generate returns throughout a complete credit cycle, the Fund invests in diversified long and short positions of North American credit securities. The Fund has the flexibility to use leverage to potentially enhance total returns, while maintaining an investment-grade credit rating.
Dynamic Short-Term Credit PLUS Fund
Created for clients looking to generate additional yield in their portfolios, the Fund benefits from the lower volatility provided by shorter-dated bonds and the active management of credit, currency and interest-rate risk.
Introducing Dynamic Payout PortfolioTM
While the above funds can be considered in constructing a high-yielding portfolio, there is a one-ticket solution. An innovative retirement offering, Dynamic Payout Portfolio employs a unique blend of income- focused equities, fixed income and non-traditional assets designed to withstand market fluctuations and provide a higher level of consistent, sustainable, tax-efficient income.
Four Simple Words: Spend Income, Not Capital
Dynamic Payout Portfolio has one central focus: to deliver consistent income in bull and bear markets alike. This allows us to continue to deliver the retirement cash flow people need, without selling the investments that are generating that income – especially at a point in time where the investments are down in value.
With Dynamic Payout Portfolio, retirees spend income not capital.
Learn more about Dynamic Payout PortfolioTM.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions may consist of net income, dividends, net realized capital gains, and/or return of capital. Distributions are not guaranteed, and investors should not confuse a fund’s distribution yield with its performance or rate of return. Target distributions are determined based on the target annual payout rate for the indicated series of the fund. Distributions are not guaranteed and may change at any time at the discretion of the fund’s Manager. To the extent this document contains information or data obtained from third party sources, it is believed to be accurate and reliable as of the date of publication, but 1832 Asset Management L.P. does not guarantee its accuracy or reliability. The information provided is not intended to be investment advice. Investors should consult their own professional advisor for specific investment and/or tax advice tailored to their needs when planning to implement an investment strategy to ensure that individual circumstances are considered properly and action is taken based on the latest available information. Dynamic® is a registered trademark of The Bank of Nova Scotia, used under license by, and is a division of, 1832 Asset Management L.P. Paycheque Portfolio™ is a trademark of The Bank of Nova Scotia, used under license. © Copyright 2026 The Bank of Nova Scotia. All rights reserved.
This article was produced in partnership with Dynamic Funds
