If the Post-Pandemic Boom Was Good to You, Portfolio Rebalancing Is the Next Step
Thanks to the post-pandemic boom, you’ve finished 2021 with higher-than-expected returns on your investments. But the very same circumstances that inspired countless entrepreneurs to create exciting new companies and led to your portfolio’s growth has also led to record inflation. What with inflation, supply and demand challenges, and the chaotic return to normal unemployment levels, the economic landscape is changing.
So don’t simply plod through the new year with the old year’s strategy. It’s time to ask yourself how you can rebalance your portfolio to include non-traditional investment opportunities that embrace the new economic landscape. Traditional investment strategies may no longer be enough to ensure a comfortable retirement, so investors are having to get creative about how they generate income from their portfolios.
If you have ever looked into a self-directed IRA, then you already know that with initiative and help from the right experts, you can invest in exciting opportunities that a typical retirement account would preclude. Here are just a few ideas for income-producing investments to get started.
Rebalance Your Portfolio with Real Estate Investments
Most real estate investments require a greater commitment than investing in stocks and bonds. Investors must be able to commit more time, research, and capital before investing in real estate. But for those investors who are not intimidated by this kind of commitment, real estate investments can be a wise choice as you’re considering how to rebalance your portfolio. So what makes real estate unique? Here are a few pros and cons.
Pros of Real Estate Investing
Perhaps the greatest advantage to real estate investments is that they can produce passive income in the form of ongoing rental payments. Real estate has historically appreciated over time, so while investors will continue to see high returns on paper, their real estate investments can still provide income without them having to sell the investment or realize capital gains.
Additionally, real estate is a tangible, concrete asset in your portfolio. Although it is still subject to market conditions and carries inherent risk (as does any investment), it is not closely tied to fluctuations in the stocks and bonds market. This characteristic makes real estate an ideal diversification opportunity for investors who are concentrated in stocks and bonds.
Cons of Real Estate Investing
As stated above, real estate investments are not without risk, as shown by the 2008 housing bubble. With any investment, investors would do well to be aware of the specific risks associated with real estate investing before they overcommit to the strategy. Real estate investing also requires more hands-on attention and oversight to maintain.
Additionally, real estate investments require a large amount of capital to get started and are not as easily liquidated as stocks. However, this is why investing in real estate with a self-directed IRA is ideal. Investors who have saved a substantial amount of money in tax-advantaged retirement accounts may already have the capital needed to start diversifying into real estate.
Before you venture into real estate during portfolio rebalancing, take a second to reflect on your own style as an investor. Are you a hands-on kind of person who finds the idea of being in charge of a concrete asset exciting? Are you capable of handling risk with a sober and calculating mindset? If yes, then it may be time to move in this direction.
Rebalance Your Portfolio with Peer-to-Peer Lending
With the advent of the internet, we have seen the development of new ways of connecting lenders with borrowers. Perhaps the simplest example of this is through peer-to-peer lending. Peer-to-peer (or P2P) lending takes place on websites that act as platforms for lenders to invest in borrowers.
Considered an alternative finance service, P2P lending operates entirely outside of traditional banking structures. The idea is that by taking place entirely online with low overhead costs and the elimination of intermediaries, P2P lending would offer inventors and borrowers more direct control over their transactions.
Each P2P platform has its own terms and fees. Many of the loans organized by these sites are unsecured, which means that lenders may be taking on more risk. Despite the riskiness of the practice, investors like the increased returns compared to other investments. Likewise, borrowers appreciate the lower interest rates they can obtain through P2P lending.
An additional factor is that a lender can often choose to loan to specific borrowers for socially responsible reasons. For example, if you find a borrower who is looking for funding for a small business that appeals to you for personal reasons, you may take some satisfaction in investing in their project.
Before you do any P2P lending, talk to an expert. The risk factors for P2P lending can be higher than many investments and there’s no reason why you should be taking any uninformed risks with your hard-earned capital.
Rebalance Your Portfolio to Include Private Equity
Just as P2P lending represents an attractive non-traditional borrowing opportunity for startups and entrepreneurs, private equity allows companies access to liquidity without turning to a bank for a high-interest loan or listing publicly before they’re ready. Private equity comes in different forms; it’s worth taking a look at a few to see which may be right for you.
Distressed Funding
As the name implies, distressed funding involves investing in companies that are experiencing financial challenges. Although the pandemic boom was good for some companies, others have struggled to survive. This makes the time for distressed funding ripe, so do your research: Are there any companies that you feel have the ability to help thrive, if they could only get access to liquidity?
Growth Equity
A company hoping for growth equity is expected to display some concrete need that, if met, will lead directly to growth. For example, they may need to expand to another location, acquire more hardware, or invest in their human capital. The burden is on them to explain to you how your investment will be put to use. This allows you to take a calculated risk.
Venture Capital
There are countless entrepreneurs out there with brilliant ideas but no capital. The risk is high, since you can’t be absolutely sure that a startup will survive that perilous first few years—but if it does, your reward is correspondingly high as well.
Buyouts
If the current management team of a company acquires a controlling share and takes the company private, this is called a management buyout. This is in contrast to a leveraged buyout, which is just what it sounds like: the acquisition of a company using debt. In both cases, the goal is to gain the ability to restructure a company so that it can improve.
As a high net-worth individual, you have accordingly high expectations for your investments. Consider working with a private equity firm with a trustworthy reputation to enjoy the substantial returns that follow when you invest in a company that ends up making it big.
How Chicago Trust Administration Services Can Help You Rebalance Your Portfolio
Don’t miss out on these non-traditional opportunities—consider opening a Self-Directed IRA.
At Chicago Trust Administration Services, we have the specialized knowledge and expertise to help you make the investment transactions you want as you rebalance your portfolio to include alternative assets. We provide administration of self-directed retirement plans including traditional and Roth IRAs, SEP-IRAs, SIMPLE IRAs, and more.
It’s time to rebalance your portfolio to prepare for the economic conditions of the future and take your investments to the level that you deserve. To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.