If you’re nearing retirement or already retired, feeling uneasy about potential market volatility is understandable. After years of saving and planning, it’s natural to want more stability in your portfolio. One option some retirees explore is adding alternative investments—assets beyond traditional stocks, bonds, and cash that may offer income, diversification, or protection during uncertain times.
While they aren’t a replacement for your core retirement strategy, like a 401(k) or IRA, understanding how these options could help support your goals can help you feel more confident about navigating market cycles.
Exploring Alternative Investments
Traditional investments, like stocks, bonds, and cash, often make up most of a retirement portfolio, but alternative investments can offer different paths for diversification. Each option has unique considerations, and understanding their potential benefits and risks can help you determine if they’re a good fit for you.
Real Estate
Real estate is an investment that can offer steady income, potential appreciation, and a hedge against inflation. However, it’s important to consider the trade-offs carefully; not every real estate investment is the right fit for investors.
- Rental properties: Owning rental properties can generate monthly income and provide potential appreciation over time. However, managing properties directly often requires active involvement, and rental income may not always cover expenses.
- Real estate investment trusts (REITs): REITs let you invest in real estate without owning and managing a physical property. They typically pay dividends, but economic conditions and interest rates often impact performance.
- Real estate crowdfunding: Some platforms allow investors to pool money into larger real estate projects. These may have higher returns but often have higher risks and less liquidity than traditional real estate investments.
Annuities
Annuities can offer a predictable income stream in retirement, which can help provide stability and reduce anxiety about market fluctuations. There are several types of annuities, each with its own considerations.
- Fixed annuities: These offer predictable, guaranteed income payments, regardless of market performance. However, the payments may be smaller, and inflation could reduce purchasing power over time.
- Variable annuities: These have a potential for higher returns because they’re tied to market performance, but this also means your income could fluctuate, carrying more risk than fixed annuities.
These investments aren’t always the right fit for every retirement plan, but they can play a role in helping create predictable income alongside other investments, especially during times of economic uncertainty. However, annuities often have fees and surrender charges, so evaluating how an annuity complements your broader strategy can help determine whether it fits your long-term financial goals.
Dividend-Paying Assets
Dividend-paying investments can supplement retirement income while potentially adding more value to your portfolio over the long term. These may appeal to investors who want a combination of steady income while still seeing potential gains from staying in the market.
- Dividend stocks: These are shares of companies that regularly distribute profits to shareholders. While dividends can provide regular income, stock prices can fluctuate, impacting total returns.
- Dividend-focused mutual funds or ETFs: These investments pool multiple dividend-paying stocks, offering more diversification. They can simplify the investment process but may have management fees and market risk.
Other Alternative Considerations
There are other types of nontraditional investments some retirees may want to explore. While these may add diversification or niche opportunities, they can come with higher risk and lower liquidity and require careful evaluation.
- Commodities: These are assets—like gold, silver, or agricultural products—that may provide diversification and potential protection against inflation. However, they may also experience price shifts based on market and economic conditions.
- Alternative investment platforms: New platforms have made it easier for investors to buy fractional shares in commercial real estate, farmland investing, and business revenue-sharing opportunities. Investors can buy into these nontraditional assets with lower entry points, but returns aren’t guaranteed, and liquidity may be limited.
- Cryptocurrency and digital assets: Some retirees may be curious about crypto as another asset to diversify a portfolio. These assets can fluctuate wildly, so it’s important to understand the risks, potential tax implications, and secure storage options before investing.
- Collectibles: Some investors may be interested in physical assets, like art, wine, rare coins, or trading cards, as another way to hold value, but such assets often require niche expertise. Collectibles can appreciate over time, but they can also be hard to value or sell quickly if cash is needed.
Whether you’re looking for more income, inflation protection, or new ways to diversify your portfolio, these alternatives may offer benefits along with your primary retirement assets. That said, these types of investments often come with higher risk and less liquidity than traditional assets, like stocks and bonds. Before exploring them, consider your time horizon, income needs, and overall comfort level.
Why Consider Alternative Investments?
When markets feel unpredictable, it’s natural to wonder how to add more stability to your retirement plan. One of the reasons many investors explore other types of investments is that their assets can behave differently from traditional stocks and bonds. That can help smooth out potential risks during times of market uncertainty.
Here are a few reasons why retirees and those close to retirement may want to consider these kinds of investments:
- Diversification: Alternative assets often move independently of traditional investments, which means they may not decline at the same time or rate as stocks and bonds. Adding them to your portfolio might help balance risk, potentially reducing the overall impact of market swings.
- Income stability: Assets like annuities, real estate, or dividend-paying investments have the potential to provide steady, predictable income streams. For retirees, this additional income can help maintain your lifestyle, even if traditional investments fluctuate.
- Inflation protection: Some alternative investments, such as real estate or commodities, may hold their value or even increase during times of inflation, which can help protect purchasing power.
- Potentially reduced volatility: Because alternative assets don’t always move in lockstep with stocks or bonds, these investments may help you create a more balanced and resilient portfolio.
It’s important to remember that alternative asset classes and investments have unique risks, fees, and liquidity concerns. They may not be a fit for everyone’s needs, especially in retirement. Before making decisions, consider speaking with a financial professional who can help you understand how these options may align with your specific goals, timeline, and risk tolerance levels.
Balancing Traditional and Alternative Options
There’s no single right way to plan for retirement, especially during times of market uncertainty. However, exploring alternative investments alongside traditional options, like a 401(k) or IRA, can give you more ways to diversify, generate income, and stay aligned with your long-term goals.
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Some of the Alternative Investments mentioned may not be offered or available through our firm.
Bankers Life Securities, Inc., Bankers Life Advisory Services, Inc., and their representatives do not provide legal or tax advice. Each individual should seek specific advice from their own tax or legal advisors.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Bankers Life is the marketing brand of various affiliated companies of CNO Financial Group including, Bankers Life and Casualty Company, Bankers Life Securities, Inc., and Bankers Life Advisory Services, Inc. Non-affiliated insurance products are offered through Bankers Life Securities General Agency, Inc., (dba BL General Insurance Agency, Inc., AK, AL, CA, NV, PA).
Securities and variable annuities offered through Bankers Life Securities, Inc. Member, FINRA/SIPC (dba BL Securities Inc., AL, GA, IA, IL, MI, NV, PA). Advisory products and services offered by Bankers Life Advisory Services, Inc. SEC Registered Investment Adviser (dba BL Advisory Services, Inc., AL, GA, IA, MT, NV, PA).
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.
Investments are: Not Guaranteed—Involve Risk—May Lose Value.
