The break in the inverse relationship between stocks and bonds, something that contributed to fourth-quarter pain in 2018, is happening again. That means, what rises together potentially falls together, rendering traditionally safe havens ineffective in times of market turmoil.
Thus, with traditional asset classes moving in tandem, the need for new strategies that act
independently of stocks and bonds is increasingly critical.
The level of investor risk is compounded by the sequence of
returns, something with which advisors are acutely aware. The
dangers of retiring in a down market are well-documented,
and damage done to retirement income from lower investment returns is further aggravated by the withdrawal of assets
for everyday living expenses — thus making it harder to fully
recover losses from the eventual rebound.
Add to this proverbial perfect storm the prediction by
Morningstar and others of future lower returns, and this
makes it a good time for advisors to introduce alternative
investments as a possible solution.
These non-correlated investments, whether tried and true
How Alternatives Work
(Real Estate Investment Trusts, hedge funds, private equity)
or hot and new (Opportunity Zones) potentially can offer bet-
ter risk-adjusted returns over time — something that fits with
investors’ longer-term retirement income objectives.
Certain liquidity issues aside, there’s increasing interest in the
benefits alternative investments provide, yet there’s also confusion about what they are and how they work.
While more than half of advisors (65%) are comfortable
with alternative investments, nearly as many (55%) cite investor confusion as the reason for a lack of alternative uptake,
according to Cerulli Associates.
Yet Cerulli also notes significant adoption, which presents an
opportunity for advisors to differentiate themselves, especially
for those who take time to understand, explain and incorporate
Whether tried and true or hot and new, advisors are looking
to alternative investments to mitigate market volatility and
generate income for retirees. By Justin Fay