The Retirement Death Spiral [Part 2 of 2]

I previously mentioned the retirement death spiral.

Retirement income often doesn't keep up with expenses, so many retirees end up selling investments.

But every investment you sell reduces your future income until, eventually, there's nothing left to sell.

So how do large university endowments try to avoid it?

First, let's take a step back.

Before there were stocks and bonds, there were businesses, buildings, farms, and private loans.

These are productive assets.

Assets that produce something.

One reason stocks were created was to give everyday investors access to those productive assets. Stocks are still ownership in businesses. But their prices move every day with the market, and that's what many retirees end up selling.

Today, productive assets include things like multi-family apartment complexes, data centers, energy production, and private lending.

Assets whose income doesn't come from the stock market's daily price. (They have their own risks, which I'll cover below.)

Historically, investing in many of these productive assets has been limited to private investors, the ultra-wealthy and large institutions.

In my experience, many large firms don't offer them to most clients, partly because they're complex and limited to eligible investors.

That's part of the reason I started Jones Fiduciary Wealth Management.

To give eligible clients access to productive assets, not just ticker symbols.

How I use them. For eligible clients, I add investments like these alongside stocks and other investments. The goal is income that doesn't depend on selling stocks after the market has fallen. I also keep two to three years of expenses in accessible investments and cash.

The risks. Private investments aren't automatically safer than stocks. They're different. Many can't be sold until the manager decides to sell the fund's assets, which can take years. Their values are often based on appraisals, not market prices. They depend heavily on the manager. Their income isn't guaranteed. Their fees are generally higher than those of ETFs and often aren't shown as one combined fee. Principal isn't guaranteed, and you can lose some or all of your investment.

Private investments differ a lot from one to the next on each of these risks. Those differences are what I evaluate most closely when deciding whether an investment is worth owning and whether it fits a client's goals. Because of where they fall on these risks, I pass on most of the private investments I review. In other words, you have to know what you're looking at.

Who it doesn't fit. Most private investments are open only to accredited investors. They don't fit someone who may need the money back quickly or can't lock it up for years. For many people, a simpler portfolio is the right answer.

DISCLOSURE: Prepared by Jones Fiduciary Wealth Management, LLC ("JFWM"), a registered investment adviser (CRD #311956), for informational and educational purposes only. Nothing herein constitutes investment, legal, or tax advice or a solicitation to buy or sell any security. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Individual circumstances vary; consult a qualified professional before acting on any information. Views are those of JFWM as of the date published and subject to change.

Alternative investments, including private real estate funds, limited partnerships, private placements, and non-traded REITs, involve significant risks, including illiquidity and the absence of a secondary market, limited access to capital, dependence on the manager, limited regulatory oversight, complex tax treatment, and the potential for total loss. They are suitable only for eligible investors who can bear the full risk of loss. JFWM-affiliated private funds are closed to new investment. Nothing herein is an offer; any offering is made only through applicable offering documents.

STRATEGY-SPECIFIC NOTICE: The investment strategy described herein reflects the general philosophy and methodology of JFWM. Actual client portfolios may differ materially based on individual circumstances, investment objectives, account restrictions, tax situation, and other factors. The strategy described is not suitable for all investors. Performance will vary across individual accounts and over time. JFWM reserves the right to modify its investment approach without prior notice.