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Stock Market Alternatives for Retirees to Protect and Build Wealth

With the cyclical ups and downs of the stock market and money market, many people are wondering if there are ways to mitigate the risk inherent in traditional investment methods without giving up yield.

After the stock market crash of 2000, stocks lost ground for three consecutive years. The markets didn’t recover until 2007, just before the next crash. Riding through stock market volatility and continuing to invest in quality stocks, bonds, and mutual funds can be very beneficial when you are regularly buying at low and high points in the market.

But stock market volatility is not your friend when you are at a point when you want to withdraw funds. Retirees in 2000 lost tremendous amounts of their savings, many losing their homes and/or returning to work. The same thing happened in 2008.

It doesn’t have to be that way.

Since 2000 and its aftermath, I spent years looking at alternatives to the stock market that will help retirees protect and build their wealth during retirement, with less volatility than exchange-traded securities.

Stock market alternatives give ordinary investors access to the kind of investment strategies and products that were previously only available to institutional investors such as insurance companies, hedge funds, and retirement funds.

One example of stock market alternatives is called impact investing. Impact investing is defined as investing with the specific objective of achieving both a competitive financial return and a positive, measurable economic, social and/or environmental impact. This is accomplished by making capital available to smaller businesses throughout the world that are committed to sustainable business practices and their potential to generate positive, measurable impact on the people, community, or region in which they operate. The Global Impact Investing Network (“GIIN”) is a not for profit organization that sets standards for measuring investment impact that supports transparency, credibility, and consistency in impact performance.

Another example of a stock market alternative is business development companies (BDCs). BDCs make it possible for private investors to invest in private companies. BDCs are closed-end funds that invest in a company’s debt (loans) or equity with the goal of generating income, capital growth, or both. BDCs are registered with the U.S. Securities and Exchange Commission (SEC) and regulated under the Investment Company Act of 1940. BDCs function much like venture capital funds with the difference being that BDCs allow smaller, non-accredited investors to invest in startup companies. Some of the reasons why BDCs have become popular is because they provide permanent capital to companies, allow investments by the general public, and can finance companies with a wide variety of sources, such as equity, debt, and hybrid financial instruments.

Because stock market alternative investment products are less well known that traditional stocks and bonds, it is important to understand the risks and benefits of these vehicles. The primary risk is typically around the liquidity of the investment. There are often more restrictions on when these products can be bought and sold than with exchange-traded stocks and bonds. The benefits, as already discussed, are about stability and income and, perhaps more importantly, diversity from the traditional stock market roller coaster ride we’ve experienced in the past two decades.

If you or at or near retirement age, it is worth your while to explore the many investment options available. Set up a consultation with me at Lamont Financial Services so we can explore these options together, (415) 883-5200.

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