At a Glance —
- Your investment portfolio is vital to both protect, and grow, your wealth, especially when planning for retirement
- Illiquid investments, specifically commercial real estate (CRE) and alternative assets can be smart choices to help investors achieve a balanced portfolio
- CRE and alternative assets may provide stability in many market conditions as well as offer wealth protection — unlike other investment options, they are backed by real assets
When it comes to funding your retirement, there are a number of investment options to consider. Many people focus on traditional retirement options including 401(k)s and IRAs. It may be equally important to also explore alternative investment opportunities. Two such options that can potentially provide significant retirement income include commercial real estate and alternative assets. While these investment options are rather illiquid, they can provide significant protection and growth of your wealth.
Commercial Real Estate
Commercial real estate refers to properties that are used for business or special purposes including retail centers, office buildings, industrial facilities, multifamily housing, hospitality and other special purpose properties.
Read more about commercial real estate assets in our insight, a guide to commercial real estate assets.
Commercial real estate (CRE) is a prime example of an illiquid investment that can be a high-performing addition to your investment portfolio. Investing in commercial real estate can offer a number of benefits for retirement investors including near-term cash flow, depreciation advantages and longer-term value appreciation.
Alternative assets are illiquid investment options which are not traditional stocks, bonds, or mutual funds sold on public exchanges. Examples of alternative assets include private equity, hedge funds, venture capital, private debt, commodities and collectibles. Alternative assets are often best used as a complement to traditional investments, helping to diversify your portfolio and to provide income and long-term appreciation.
Read more about alternative asset investing.
Key advantages when considering alternative investment options —
- Steady income
- Potential for appreciation
- Potential for high returns
- Tax benefits
- Hedge against inflation
Alternative investments have the potential to generate steady income in the form of rent or routine income. This can provide a reliable source of cash flow with investments which are not subject to the same fluctuations as the stock market.
Potential for Appreciation
Over time, alternative asset investment values can appreciate, providing investors with capital gains in addition to steady income. With CRE specifically, the investment is tied to physical assets (buildings and land). This can help increase the value of the investment and provide a larger retirement nest egg.
Commercial real estate and alternative asset investments offer a number of tax benefits, such as deductions for depreciation, mortgage interest, and property taxes. These deductions can help lower the investor’s tax bill and increase the overall return on investment.
Read our insight on tax advantages of depreciation for CRE investors.
By investing in commercial real estate and alternative assets, investors can diversify their portfolios well beyond traditional stocks and bonds. This can help significantly reduce risk, protect wealth and potentially increase returns.
Read our insight on how to reduce volatility with a solid diversification strategy.
Potential for High Returns
Alternative investments can offer the potential for high returns that are not correlated with the stock market. It’s important to note that these investments can also be riskier and require more due diligence than traditional retirement accounts.
Hedge Against Inflation
Certain alternative assets and commercial real estate investments can provide an important hedge against inflation as they have intrinsic value and can appreciate over time as the cost of goods and services increases. This can be especially important for retirees who are concerned about maintaining their purchasing power over time, throughout retirement.
Read our insight on how commercial real estate can be a powerful hedge against inflation.