Alternative Investments


Simple investment growth is not enough as you move from the accumulation phase to the distribution phase of your life. No matter how much you have saved away, during retirement, generating reliable income streams to provide you with the means to live on is the most immediately pressing goal. Dividend-paying stocks are one of the more commonly prescribed solutions to the need for growth-oriented and cash-flowing assets, but can carry added risk from greater market exposure. Annuities can be used to create the needed retirement income, but might not be appropriate for your specific financial situation, e.g., greater need for growth, immediate liquidity, etc. At PFS, we consider non-traded alternative investments as another possible income solution.

Alternative investments typically have a low correlation with those of standard asset classes, which makes them suitable for portfolio diversification. In addition, Real Estate Investment Trusts (REITs) are required by law to maintain dividend payout ratios of at least 90%, making them a favorite for income-seeking investors. REITs can deduct these dividends and avoid most or all tax liabilities, though investors still pay income tax on the payouts they receive. Many REITs have dividend reinvestment plans (DRIPs), allowing returns to compound over time. However, REITs and other types of alternative investments are more complex than traditional investment vehicles; they often have higher fees associated with them and they're more volatile than traditional investments such as stocks, bonds and mutual funds. The majority are invested in illiquid investments, making them difficult to exit and price on a regular basis.

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