From the time you started your first job, you were told to focus on retirement. The reason you were supposed to start saving for retirement in your 20s is that traditional government benefits wouldn’t be around once you reached retirement age. Thus, if you didn’t start saving immediately, your retirement years would be a very horrible time in your life.
This is probably the first time you stressed about building a solid retirement fund. The challenge of accumulating enough money during your working years is to have that money work you later. This means that when you retire, the accumulated assets must start working to provide you with an income that will maintain your desired standard of living. Also, your retirement funds must provide you with peace of mind that you won’t return to work because you didn’t save enough money.
Generations before you could count on receiving a lifetime pension provided by their employer. Your employer may provide a 401 (k). They may even make matching contributions. Unfortunately, times have changed. Thus, you can’t depend on your employer to provide you with a healthy retirement fund. It’s all on you now.
You may be wondering, “What about my 401 (k) at work?”
Fortunately, your 401(k) can be an effective retirement option. Of course, that is if you are adding enough money in your 401 (k) as required. Unfortunately, the money accumulated in a 401 (k) is rarely sufficient to guarantee two things. It won’t guarantee that you will maintain your desired standard of living. It also isn’t sufficient enough to guarantee that your 401 (k) won’t run out of money during your retirement years.
So, what are you supposed to do to ensure your 401 (k) won’t run out of money when you need it the most?
Implement a personal investment plan with stress free alternatives to supplement your current 401 (k) or traditional retirement plan.
What Are the Traditional Investment Opportunities?
Before discussing alternative ways to invest in your retirement, let’s discuss some investments you’ve heard about. Many people try to secure their retirement funds with traditional investment opportunities such as mutual funds, stocks and bonds. These things are good at supplementing a 401 (k). However, they do have some risk. For example, it can be stressful watching the stock market take a roller coaster ride.
The one good thing about traditional investment options is that they are considered “liquid.” If your investment decreases, you can sell them, then hold the money for a better opportunity. Yes, traditional investments have an additional downside (besides the stress). That downside is that you often can’t maximize the potential returns you initially invested.
What Are Alternative Investment Options for Retirement?
Non-traditional investment, also called alternative, options offer three to five times higher return than traditional investments. What does the term “alternative investments” mean? The term is broadly used to describe types of non-traditional investment opportunities ranging private equity funds and venture capital groups to commodities and arbitrage funds.
It’s important to be realistic about alternative investments. They do have a downside. For example, the are riskier than traditional retirement investment opportunities and are not liquid. This means that you won’t have the opportunity to sell your investment at the time of your choosing or when you lose money on your investment.
Another downside of alternative retirement investments is that you’re in it for the long-term. For example, you may invest your money in an alternative retirement that you can’t sell or use for at least five years. Thus, it’s a major investment. You’re placing capital in a particular investment knowing that you’re exchanging the risk of not having access to money for the possibility of a higher return than you’d receive with traditional investment.
Examples of Alternative Investment Retirement Options
As mentioned, there are many alternative investment opportunities you have to increase or solidify your retirement assets. One example is commodities includes resources like fossil fuels, coal, oil, livestock and crops. It also includes precious metals such as gold and copper.
Investing in commodities is a high risk venture. One year a crop can soar because of an increase in demand. The next year there is a huge surplus and the price for crops could dramatically decrease. That’s why makes commodities better long-term investment opportunity for retirement. Other alternative investment opportunities for retirement include:
1. Venture Capital — One of the most popular alternative investments for retirement is venture capital because it focuses on start-up companies in the early stages of development. Thus, you’re providing start up money for companies and receive a return when those businesses issues stock. You will also receive a return when other companies buy the start-up businesses. It does come with a risk. Your payout comes 10 years after your initial investment or not at all. The best thing about the investment is that you invest and forget about stressing over a return.
2. Real Estate Investment Groups — Some consider real estate a traditional retirement investment. It is a good investment opportunity. However, an alternative retirement option called real estate investment groups may be a better opportunity. They provide a more hands-off and low-risk method to increase your retirement assets. You contribute money in a business that manages property such as a condo development. The company is responsible for managing the property and collecting the monthly rent.
3. Real estate investment trust — Another similar alternative investment option is called a real estate investment trust (REIT). This is another investment option where you invest in a particular real estate property. The REIT receive a preferential tax treatment from the Internal Revenue Services (IRS) in exchanging for paying shareholders.
Investing in an REIT is for an individual who wants to be to liquidate their assets at any time. This means that it is similar to stock because you are purchasing shares of the REIT and can sell them at any time. Also, you receive regular dividends.
Determining the Best Alternative Investment for Retirement with Less Stress
There is stress with every retirement investment you make. However, you have the ability to control the amount of stress you feel when making an investment for retirement. To reduce the levels of stress that comes with alternative investments, remember three things:
1. The first rule involves asking yourself one question when you are thinking about an alternative investment. Do you know, respect and trust the individual trying to convince you to invest in an alternative retirement investment? Assessing the person associated with the investment is just as important as assessing the alternative investment. If they aren’t involved in the direct management of the deal or risking their own money, you may want to look elsewhere.
2. The second rule is to thoroughly understand the alternative investment. Before investing, you must understand the structure of the alternative investment. You must also understand how the potential returns in the investment can be achieved and in what time period.
There’s never a specific magic or secret way to be successful in a retirement strategy. Unfortunately, many people who claim to have some secret method of investing in traditional or alternative opportunities are usually facing criminal charges later for fraud. No investment opportunity should be too good to be true. Also, if you don’t understand, don’t think it’s because you’re stupid. It may not be the investment for you.
3. The last rule is to never put a huge amount of money in single alternative retirement investment. If the investment goes wrong, it will change your lifestyle now and during your retirement years. Instead, diversify your investments. In addition, invest with the understanding that some or all of it will be lost. Yes, that’s counter-intuitive. However, it’s the best way to minimize stress. In this last rule, determine whether you have enough capital to lose or enough to even consider a particular alternative investment.
Following the Three Rules are not Guaranteed Success
Transparency is important here. Following the three rules will not eliminate risk or guarantee a successful return. However, following these rules will reduce the stress associated in investing money for retirement. Also, you will have a chance of success.
Remember, investing in a retirement plan is like baking a cake. You have to mix your traditional and alternative retirement investments together to create a solid plan that will outlive your retirement. This means that your traditional investment options such as your 401 (k) and tax-favored plans are the layer of your cake. Other traditional retirement investments will also form the layers of your cake. All the alternative retirement investments you make are the frosting of your cake. It sweetens your retirement.
Retirement and Alternative Investing Options
You’ve been told that Social Security won’t be around when you retire. Even if that fact is a myth, it is important to understand Social Security will not allow you to enjoy your desired standard of living. A desire standard living during retirement years depends on the person.
One person may want to tour the world during their retirement years. You may want enough income to stay in your home and garden. The important thing to remember is that you have stress free options when it comes to investing for retirement. Many of these alternatives are stress free and allow your money to work for you and not the other way around.