9 Key Signs Your Alternative Investments Will Fund Your Retirement
Written by
Angela Mae
Edited by
Chris Cluff
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If you’re planning your retirement, the last thing you want is to be unprepared when the time comes. One key part of making sure you’re ready is calculating your expected retirement income. This can come from many sources, including alternative investments like real estate, cryptocurrency, precious metals, private lending and more.
While having alternative investments can go a long way toward helping you financially, knowing that they’ll provide enough retirement income can give you peace of mind when you most need it.
Here are some key indicators that your alternative investments will give you enough income to retire comfortably.
You Have a Diversified Portfolio
Having a diversified investment portfolio is vital to ensuring financial stability during retirement. But that might mean having more than just alternative investments to sustain you financially.
“Diversifying your alternative investment portfolio across different asset classes, industries and regions can help mitigate risks,” said Sigita Kotlere, CEO at Nectaro. “A well-diversified approach enhances the potential for stable income streams.”
Keep in mind that alternative investments are not for the inexperienced investor. Robert R. Johnson, Ph.D., CFA, and professor of finance at Heider College of Business at Creighton University, advises against relying on alternative investments unless you’re a more sophisticated investor.
“People should begin investing in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down or sideways,” Johnson said. “Dollar-cost averaging into an index mutual fund or ETF is a terrific lifelong strategy. Dollar-cost averaging is a simple technique that entails investing a fixed amount of money in the same fund or stock at regular intervals over a long period of time.
“For the vast majority of investors, the KISS mantra — keep it simple, stupid — should guide their investment philosophy.”
If you do have more complex or alternative investments, having a diversified portfolio — one with simpler investment vehicles included — can help ensure you have enough retirement income.
Your Alternative Investments Are in Good Condition
Certain alternative investments include physical items such as collectibles. But to maintain their value, you’ll need to keep them in good condition.
“A fun alternative investment is collectibles. This can include items such as art, classic cars, wine, watches or handbags,” said Todd Stearn, founder and CEO of The Money Manual. “Over decades, collectibles can bring in a 2% to 3% return over inflation. The Liv-ex Fine Wine 1000 tracks values of fine wines. Fine wine has provided an average return of 10.6% over the last 15 years.
“Like any investment, the collectibles market requires research,” Stearn added. “The difference between owning stock and collectibles is you might be able to enjoy owning the collectible. The downside is these are typically physical items, so you’ll need to safeguard them carefully.”
If you don’t, they could lose their value and reduce your retirement income.
Your Investments Have Consistently High Returns
Another way to determine whether your alternative investments will provide enough money to live on during retirement is to check their typical returns.
“The return on investment [measures] how profitable an investment has been. If it’s high, that’s generally a good sign,” said Eliza Arnold, CEO of Arnie.co.
Take peer-to-peer lending, for example.
“This is where you lend money to individuals or businesses through online platforms that match you with borrowers,” Arnold said. “It can potentially offer higher returns than traditional investments; but, of course, it’s not without its risks.”
Your Investments Provide Positive Cash Flow
“Cash flow is another crucial element, particularly with real estate and P2P lending,” Arnold said. “Positive cash flow means the investment is generating enough income after expenses, which is crucial for maintaining a comfortable lifestyle in retirement.”
If your investments have consistently provided positive cash flow over the years, they might continue to do so in the future. If they haven’t, however, they might not be enough to support you throughout your retirement years.
Your Investments Have Good Historical Performance
“Review the historical returns of the chosen alternative investments,” Kotlere said. “A consistent track record of positive returns can indicate potential income generation.”
An investment’s history won’t guarantee its future performance. But if it has previously — and currently — provided sufficient income, there’s a good chance it will continue to do so in the future.
They’re Protected Against Inflation
Rising inflation rates can cut into the value of your alternative investments. If your investments are protected against inflation, that could be a good sign that they’ll provide enough income during retirement.
Take precious metals like gold and silver, for example. “These timeless assets are often seen as a hedge against inflation and currency fluctuations, providing a sense of security during uncertain economic times,” Arnold said.
This is especially vital to people considering retirement because “maintaining purchasing power in retirement is paramount when living on a fixed income,” she said.
Your Alternative Investments Provide Sufficient Passive Income
Most people live on fixed income during retirement, so your investments should provide enough money to cover your anticipated expenses — including healthcare costs and long-term care.
Sebastian Jania, the owner of Ontario Property Buyers, suggested investment vehicles that generate passive income or dividends.
For example, an alternative investment such as cryptocurrency could generate passive income. The same goes for real estate investment trusts that pay dividends. If the amount of money you’re earning through these investments is enough to cover your expenses, you could be on the right track.
Your Alternative Investments Are Part of a Bigger Plan
Your alternative investments shouldn’t be your only source of retirement income. Rather, they should fit into the bigger picture.
“It’s important to recognize that financing your retirement necessitates a comprehensive and long-term outlook,” Kotlere said. “Therefore, I would highly recommend approaching this endeavor with careful consideration. Incorporating not only investment strategies but also effective savings planning is vital for securing a stable retirement future.
“Alternative investments for retirement income require a patient, long-term perspective. Assess whether your chosen investments align with your retirement timeline and objectives.”
You’ve Consulted a Financial Advisor
“Everyone should do their due diligence or consult with a financial advisor before making any major investment decisions,” Arnold said.
A financial advisor can help you with retirement planning, specifically when it comes to long-term planning and investment management. By consulting an experienced advisor, you can better evaluate the risks and rewards of your investment portfolio and help ensure you’ll have enough income during your retirement years.
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