Investing Beyond Traditional Retirement Vehicles

Investing Beyond Traditional Retirement Vehicles

Imagine a financial advisor with a decade of experience sitting down with a new client to begin planning for retirement. The advisor starts by presenting the client with the traditional ‘three-legged stool’ model for investing. Yet in the back of his mind, he is thinking it is time for something different. What does he do? Does he continue with what he has always known or does he work up the courage to think outside the box?

The three-legged stool of retirement investing has been around for decades. The three legs of the stool are:

  • pensions
  • social security
  • equity investments.

It is true that this model has held up well for decades. But it is also true that times are changing. Look at pensions. Corporate America has been fleeing the defined benefit pension for years now, closing some pensions completely in favor of 401(k) retirement plans. When a pension is replaced by a 401(k), one leg of the stool becomes unstable.

The fact is that circumstances change with the times. So do investment opportunities. Things have changed so much since the financial crisis of 2008 that many financial advisors are now thinking beyond traditional retirement vehicles in search of new ways to help clients build wealth.

Real Estate Investments

At Pasadena-based Western International Securities, financial advisors have access to one of the largest collections of investment opportunities around. Among the broker-dealer firm’s alternative investments are Real Estate Investment Trusts (REITs). A REIT is a company that invests in and/or owns income-producing property. This could be residential rental property or leased commercial space.

A lot of up-and-coming financial advisors are encouraging clients to invest some of their retirement money in real estate opportunities. The reasoning is simple: volatile market conditions naturally limit returns on equity investments. Property is significantly less volatile. Even in tough economic times, property continues to generate income. Any income derived from real estate investments can be used to increase investor holdings or siphoned off and put into other opportunities.

Investments in Business

Another hot alternative investment is the business investment. It is one of purchasing full or partial ownership in a business separate from the investor’s current means of making a living. A software engineer might buy a local landscaping business being sold by its retiring owner, allowing the business to continue operating with current staff. Of course, investors have to be careful to choose rock-solid businesses with histories behind them.

The main advantage of business investments is financial diversity. Having both a full-time job and ownership of a business creates two revenue streams that are likely to react differently to economic conditions. Branching out into multiple businesses increases that diversity as long as the businesses are in different sectors. The extra diversification provides insulation as economic conditions ebb and flow.

A New Investment Stool

Today’s financial advisors capable of looking beyond traditional investment vehicles are discovering they can build a new three-legged stool that is just a stable and profitable, if not more so. The Social Security leg is not necessarily going away, nor are equity investments. In fact, even the 401(k) plan does not have to be dispensed with. Investors can completely abandon the three-legged stool in favor of one with four legs.

The point of all of this is to say that equity investments and pensions are no longer viable as sole supporters of Social Security. Pensions are fading away, and equities are limited in their ability to perform. Investors need something different, and they are finding it in alternative investments such as property and business opportunities.


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