Episode Transcript
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(00:50):
Aloha Inspired Money Makers if this is your first time
here, welcome. If you're returning member of our audience and community,
welcome back. In today's episode, Investing for
Retirement Growth Beyond Stocks and Traditional Assets, we're going to
explore the strategies, tools and insights of retirement
investing beyond the S&P 500 or the
(01:12):
traditional 6040 portfolio. I saw the
figure that alternative investments have grown significantly
now accounting for over 12% of global investment
portfolios. Notably, university endowments
like Harvard and Yale have successfully leveraged alternatives like
private equity, hedge funds and real assets,
(01:33):
contributing to their strong long term returns and portfolio
resilience. How can you further diversify your retirement
portfolio to maximize growth and manage risk?
And perhaps most importantly, should you in this
episode we're going to discuss real estate, alternative investments, digital
currencies, ESG strategies and risk management.
(01:55):
Whether you're planning for retirement, navigating your financial future, or
just curious about what's next in
investing, this episode is packed with actionable insights that you don't
want to miss before we get started. This episode of Inspired Money
is brought to you by my my company Runnymede Capital Management,
a fee only registered investment advisor helping you to plan
(02:17):
for retirement and align your investments with your goals. If you want to get
started today with our free 3 minute plan, visit
InspiredMoney.fm/GetPlan. You'll answer a few
questions to see if you're on track with your retirement goals. And
if you do it, I'm happy to schedule a short call to review it
with you. Now let's bring in our expert panelists,
(02:40):
some of the most innovative minds in finance. We have
five panelists today, so I'm very excited. Let me start with Shana
Orczyk Sissel. She's founder and CEO of
Banríon Capital Management, specializing
in alternative investments and portfolio solutions for
financial advisors. She's known as the Queen of Alternatives.
(03:03):
Shana is a sought after speaker and media contributor, leveraging
her two decades of industry expertise and
personal resilience to advocate for women in finance and demystify
complex investing strategy. A shout out to Dr.
Preston Cherry who was on last week. He was talking about the
real secret to emotional spending and mastering your credit score.
(03:25):
He made the introduction and that's why Shana's here.
Shana, welcome. Thank you so much for having me. Excited to
have you. We have Roger Whitney back on the show, the Retirement Answer
Man. He's a certified financial planner with more than 27
years of experience. He's author of Rock
Retirement and founder of the Rock Retirement Club. He's also
(03:48):
the voice behind the popular Retirement Answerman podcast that
has over 8 million downloads. Roger, welcome
back. Excited to be here. I think I might be the or
should you voice of this conversation. All right. Looking
forward to it. We have Teresa Ghilarducci. She's
a labor economist and retirement security expert serving
(04:10):
as the Bernard L. And Irene Schwartz professor
of Economics at the New School for Social Research.
She directs the Schwartz center for Economic Policy
Analysis and the Retirement Equity Lab.
She's known for her influential work on pension reform.
She proposed guaranteed retirement accounts to address the
(04:32):
retirement savings crisis and has authored several books
including Rescuing Retirement, how to Retire with Enough Money
and Work Retire, Repeat the Uncertainty of Retirement in the
New Economy. Teresa, so glad that you're here. Thank you.
And then Rich Carey, back on the show. He successfully built a
substantial real estate portfolio while he was
(04:54):
stationed in Germany and Korea. He managed to acquire over
20 properties and be debt free. Today, he's retired
from he's retired from the military and living off
passive income generated from, I think his 30 plus
properties. He lives in Montgomery, Alabama where he's a
Realtor. He manages his investments and learn
(05:17):
about building wealth through his real estate on his TikTok and YouTube channels.
Rich on money. Rich, welcome. Thanks. Glad to be here
again. And rounding out our panel today we have Barbara
Friedberg. She is a veteran portfolio manager,
fintech consultant and investing expert dedicated to simplifying
wealth building strategies. She's author of several books including
(05:39):
Invest and Beat the Pros, Personal Finance, An Encyclopedia of
Modern Money Management and How to Get Rich Without Winning the
Lottery. Her work has been featured in U.S. news & World
Reports, Investopedia and Yahoo. Finance. You can
visit her YouTube channel and her website,
barbarafriedbergpersonalfinance.com for more information.
(06:00):
So glad that you're here, Barbara. Thanks for having me,
Andy. All right, well, we have a lot to cover. We have five
segments. Let's jump right into segment one.
Alternative investments provide options beyond traditional stocks,
bonds and cash, aiming for diversification and potential
growth. These assets include private equity, hedge funds,
(06:22):
real estate, commodities and collectibles, each carrying
unique risk and return profiles. Private equity involves
direct investments in private companies, often targeting long
term value creation through strategic management. Hedge funds,
meanwhile, use diverse strategies such as long, short equity and
derivatives to generate active returns. Real estate investments
(06:44):
range from residential and commercial properties to real estate investment
trusts. Commodities including gold and oil offer
inflation protection, while collectibles like art and rare
coins may appreciate over time, these assets can reduce
portfolio volatility due to their low correlation with traditional
markets. However, Many alternative investments involve
(07:06):
lower liquidity and higher minimum investment thresholds, often
appealing to institutional and high net worth investors.
Recent innovations, however, are making them increasingly available
to retail investors seeking growth and stability beyond
conventional assets.
(07:28):
Teresa, I want to start with you. Many experts say that we're living
longer, so we need to work longer to save more for
retirement. What's your view on the retirement
crisis today? Well, we have a retirement crisis and
a lot of it is because we've had this experiment for 40
years where American individuals have been asked to
(07:49):
shoulder the risk of the market
risk, the systemic risk, their own risk of making
a portfolio allocation mistake of their own risk
of actually being out of the labor market for a while is inappropriate
shift in risk and it didn't work. It's a
failure. We've had a generation of workers
(08:11):
living under this experiment and we now have the results of it.
The median amount of retirement assets
to supplement Social Security is zero. If we,
conditional on people having a retirement
access, having a retirement account, the median amount
is $90,000, which is kind of a
(08:33):
dinner in a movie, you know, once a month for the rest of your
life. It's not anywhere near adequate. And it's
because we've had this do it yourself system where
people individually direct their portfolio. So I'm very worried
about these new asset classes in individual
portfolios. Interesting. Shana,
(08:55):
as the queen of alternatives, can you explain how retirees and their
advisors can include alternatives in a portfolio
construction? Sure. So I'm going to start out by
addressing what I think are going to be the vast majority of the
concerns from the other panelists, which is, you know,
the lack of transparency, the lack of liquidity,
(09:17):
the lack, the complexity of these types of products and are they
suitable for the average investor? And my
answer to that is it depends.
So if you look at alternatives, broadly speaking,
I like to say there are diversifying alternatives and then there
are just alternative ways to get access to traditional areas.
(09:39):
So private equity and private credit are still equity and credit and
they have the same risk associated with them, whether or not
you know it that traditional equity markets
have. Just because they don't have to mark to market
doesn't mean that they, if they had to sell during times of stress, that they
wouldn't experience similar drawdowns and they should be considered
(10:01):
as part of your equity or credit portfolios. Now the benefits, of course,
to these types of strategies is that by being in a less
efficient private market, you have the better
opportunity for alpha creation. But
the average person who doesn't have sufficient
Retirement savings probably isn't even eligible for these
(10:23):
products in the way that they have historically been offered.
There's been a change in the market where we have this
idea of this democratization of these products. And more
and more we're seeing strategies come to
market and packages that are available
to any investor. So things like Interval Funds, which is a fairly
(10:46):
new innovation, I mean the Interval Fund
is not new, but the more broad use of it
in the alternative space is. But they still have
similar issues as it pertains to liquidity
and ability to get access to your,
your, your funds in time of need. But I
(11:08):
do think from a retirement perspective the benefits that
alts really play is in the risk management as a risk tool.
And I'm sure there are plenty of people on this panel that would disagree with
me. But I, I can firmly say with a lot of conviction because
I wrote the module for it for the CAIA (Chartered Alternative Investment Analyst) Association,
that the actual research supports
(11:29):
the fact that alts are diversifying to portfolios,
allowing for you to as an investor
to take risk in places that make more sense.
And the diversifying alter things like hedge funds
and things that are not related to equity or credit.
So things like collectibles, sports, things of
(11:51):
that nature fall into that diversifying bucket. And
research shows that about a 20 allocation to that usually coming out of
fixed income. Because a lot of these things do actually generate substantial cash
flow, sometimes even better than fixed income. They can
support your income needs in retirement, but at the same time provide you a
diversification benefit. So the ride is smoother because at the
(12:14):
end of the day the portfolio that works best is the one you can stick
with. And when you have less volatility as
a whole, and some of it I will firmly
admit is somewhat of
a charade in that they don't have to market all the time. But
psychologically, from a client perspective that doesn't really matter.
(12:36):
It really is about smoothing out the ride to make the portfolio that they're
in positioned better for them to stick with it to help them meet
their end goal in retirement. Well, I think that's what's important. And I think it
gets interesting because access is
increasing. I'm seeing more ETFs where they're
actively managed strategies. There are different hedge fund managers
(12:58):
who are launching ETFs because they want more
distribution. Roger, just because you
can doesn't mean you should. I think
that's the point. And it's, it's, you have to approach this
by where. What are you trying to solve for first?
If you are at retirement, you're trying to solve to meet the
(13:19):
liabilities of your spending over a period of time. You're not trying to
solve for alpha. As an example and an
important thing to understand when we're talking about alternatives is
that a quote from my favorite economist which is there are
no solutions, there are only trade offs. And
it's important to make your retirement plan as simple as process now
(13:41):
in terms of the increase in access to alternatives and it
going down market from a net worth standpoint after 30
years in this business I it's just really marketing. Nobody's asking
for this. It's a distribution. We have new ways that are
legal to distribute products that are more sophisticated.
And it's always about grabbing assets from a
(14:04):
product manufacturing standpoint. That is just the nature of the
system, not good or bad. As
someone trying to actually solve for their retirement
plan, it's important to know is it worth the extra
complexity and execution risk to add it to the portfolio. And
most of the times it really isn't. Now this is a very different issue than
(14:26):
what Teresa was sharing which is a major issue.
Most people just don't have the money to retire for a variety of reasons. I
do agree that it's. I do agree that is a part of
the transition from pension to 401k but I think it's
much more multi dimensional in that you can factor in consumerism
and debt and our consumer
(14:48):
society to contribute to that as well. But I
think it's a tool in the toolbox but a much more complicated one
that needs to be used very carefully. I do want to just interrupt if
you don't mind to address the comments
about going down market and being an asset grab. To some extent
that's true but there's also a very overwhelming
(15:10):
demand. We see it all the time in the REA market. Clients are asking for
this. There are a couple of things that you'll see in
generational evolutions right now. So if you take out
the baby boomers who are in retirement and you think about the generations behind
them, those generations want to invest in a way that aligns with their
personal values and passions. And traditional
(15:31):
investments don't necessarily do that really. It's only the alt
space that allows for that. By having more liquid and more
accessibility to it, advisors can provide their clients with things
that they are more excited about that work for the portfolio.
And I will note that if you were to look at I used to work
at Mercer and I worked in and the
(15:53):
whole idea of doing liability driven investing
ldi. Most LDI models stay
out of equities and really focus heavily on the whole
goal is to have just fixed income, meet the
liabilities of your portfolio.
In order to do that, you have to have a risk budget and you have
(16:15):
to stick with that risk budget. And then as you get closer to being able
to meet your liabilities with the least amount of risk, you take the
risk down by adding alternatives into
a portfolio that actually reduces the overall
risk of not being able to meet your liabilities. Now, I will also
say that yes, they are complex, but they don't have
(16:37):
to be. I think as an industry, we treat investors and their
advisors a little bit in a condescending way, as if they're
not smart enough to figure this stuff out and don't give them the information they
need to actually learn. I actually disagree with so much of what you
said, Shana, in terms of consumers asking for
it. And I think it's probably more advisors asking for
(16:59):
it as a means of telling a story to a client.
And within the context in retirement
planning, there are very few retirement planning
advisors. There are a lot of advisors that were trained
via CFP and the normal certifications on accumulation.
And now that they're approaching clients that are in retirement, they're thinking from an
(17:21):
asset allocation optimization mindset,
which is a strategy that was never intended for
decumulation. And so the process they're using to try to
generate alpha or manage asset allocation
in a retirement complex is totally wrong. So I disagree with
a lot of what you said. I don't think asset alternatives are wrong.
(17:45):
I just think in retirement they introduce a lot more
uncertainty than people realize. I don't want to
monopolize time from Barbara and Rich, but you know, all this
works on paper. Of course, we all know that diversification, you know, lowers
your risk and raises your risk adjusted return. But that's not the point.
It's about how this works in real life. But I'm going to stop.
(18:06):
Rich and Barbara need a chance to. I want to turn to Barbara
because Barbara, I know that you've looked at apps like Titan Invest
good people, including retirees be considering hedge
funds, crypto, venture capital, private credit, etc.
Yeah, I've looked at a lot of the new crowdfunding
type apps that open the door to alternative type
(18:29):
investments to the little guy or the little gal. Now,
some of them will require you to be an accredited investor,
which is a little more wealthy, but some of them are open to
anyone. And so my concern
with the apps that democratize
alternatives as well as products such as
(18:50):
Shana discusses which are likely just available
to accredited investors and that includes hedge
funds, those types of things. Look at the
fees because fees
are inversely correlated with
returns. Research has shown that. And typically
(19:11):
hedge funds have huge fees and many of
these apps have huge fees. And so
you need to be aware of that. That is my main point
for now. I'm not saying good or bad,
but whatever you invest in, know what you're investing in,
understand it. Shana, I, I get that. You know, people can
(19:33):
invest in alternatives and people are not stupid,
but they need to really have a good idea what are the
underlying products you're investing in
and what are the potential losses.
I want to ask Teresa, can you talk a little bit
about this motivation for
(19:56):
savings and what your research says? Yeah.
I've looked at wealth accumulation for the past 40 years
to see if it's actually consumer debt that is causing
the low amount of wealth by the time you reach
retirement. And it absolutely isn't. When we knock
people out of a wealth accumulated retirement wealth
(20:19):
acuity institution like defined benefit plans or what
should have happened 40 years ago is a
universal pension system that was professionally managed with
pooled assets to exist alongside of Social
Security like all of our other sensible peers do,
then we would see actually wealth accumulate. The
(20:41):
401k has actually made
retirement much retirement assets. That means all wealth assets
much more unequal. And so Shana is talking to a
tiny sliver of individuals accumulating their
retirement. They're at the very, very top. Perhaps they
could take a spreadsheet and diversify, manage
(21:03):
the cost of management and manage the
correlation. But if they want to do that, they should do it outside
of tax
favored retirement accounts and just do it with their own money, not with the
government's money. So it's not the fault of people spending
habits or debt accumulation habits that is causing the
(21:24):
retirement crisis. It's inadequate system for
accumulating wealth for the bottom. Really
it's actually the bottom 80% of the population
just don't have the secure lives and the secure incomes
and the employers that have offered a retirement account.
Thank you. I'm so glad that we have a diversity of
(21:48):
opinions here. Let's go straight to segment two.
Real estate investments offer retirees options for income stability
and portfolio diversification through two primary vehicles,
real estate investment trusts and real estate crowdfunding
platforms. REITs are publicly traded companies that own or
finance income producing properties. They provide liquidity
(22:10):
as shares can be bought and sold on exchanges. REITs distribute
at least 90% of taxable income as dividends with an average
yield of 3.8% in 2025. But their
prices can fluctuate with market conditions and interest rate
changes. Real estate crowdfunding allows multiple
investors to pool capital for specific projects through online
(22:32):
platforms, often requiring lower minimum
investments. While it can offer higher returns due to direct
project involvement, it comes with greater risk and limited
liquidity since funds are tied up for the duration of the project.
Both options offer diversification, but REITs are suited for
those seeking liquidity and passive income, while crowdfunding
(22:54):
may appeal to investors looking for project level involvement and
potentially higher returns.
Rich, can you talk a little bit about how for you, you
came to select real estate as an important part
of your retirement plan?
(23:16):
Well, actually, that's an, that's a good question,
and I don't think you necessarily know the answer. But for me, I was in
the military for 20 years. You think of military as something that's
very stable. If you want to, you get your 20 years in and you get
that pension. But what I kept seeing was that the military kept
doing these downsizings every four to five years
(23:38):
where they would get us all together, rack us and stack us and chop
off a certain amount at the bottom. I invested in real estate
because I was worried that there wasn't going to be a retirement for me, that
I would potentially get kicked out before the 20 year point. And I wanted to
build up a passive income should that happen
and should I not get a retirement
(24:00):
like military retirement, then I'd have that passive income
to fall back on as I went back to the workforce. And of
course, if I made it to 20 years, then the retirement is just gravy. And
luckily that's what happened.
Barbara, what metrics should retirees focus on when
evaluating REITs for dividend stability?
(24:23):
I love real estate. I love actual real estate. I love
REITs. I've invested in all of them since 1980s.
So what metrics should they look at? REITs are a totally
different asset class and they package together different types of
real estate estate into investable
securities. They have differing tax
(24:45):
consequences than your typical dividend paying stocks.
So that's something to be aware of. They don't provide
qualified dividend status, so you're going to pay higher
taxes. They also come in a
general type or you can buy like a storage REIT, or
you can buy senior citizen REITs, or you can buy
(25:08):
student housing REITs. So they're all different types. They
typically have pretty good dividends. So what metrics
should you look at, well, you want to look at yield, you want
to look at diversification. Do you want just buy a big
REIT ETF and be done with it and have
(25:28):
access to all different types of real estate properties?
The advantage of REIT has over say a crowdfunded real
estate project is that
your money is totally liquid. You can get in, you can get
out whenever you want. You might not get as high a yield,
but you've got a lot more flexibility with REITs.
(25:51):
I think if you want some real estate exposure, it is
somewhat uncorrelated with stocks and bonds
and they're worth looking at. Understand the tax
consequences. Maybe you're a millennial or someone that
wants to invest with their values and you
believe certain
(26:13):
types of real estate cater to certain
segments. Choose that type of real estate. The best place to get more
information is the real estate
REIT website.
Thank you, Roger. As a cfp, what are the pros and
cons of including real estate in a retirement plan?
(26:35):
Are you looking for inflation protection? I'm a big fan of
real estate if you're
interested in it. Again, it's one of those trade off things that, and we're talking
very different kinds of real estate here.
REITs are, have a long history.
They are going to provide income. Generally that income is
(26:57):
going to be inflation protected, which is really nice. So it's a form
of safety first. The income generally
are stable in those although the prices will go up and down. And then the
opposite extreme is the individual real estate which we
have a number of clients that own and manage residential and
commercial properties as part of of their retirement
(27:19):
plan. And I think the key here is
understand the trade offs and incorporate
it into your withdrawal strategy. Because retirement for the
individual is essentially an asset liability matching exercise.
I have these, the spending I have to make over the
next 20, 30 years and how am I going to have money come due
(27:41):
either in the form of income or a bond maturing to
match that. But I think real estate's a great asset. One thing I like about
it is I think of investing like eating
food. I always want to try to eat food and not
food product. And there's a scale there from organic.
I you know, Rich owns a house, Roger owns a stock
(28:03):
to a Twinkie which is something that is much more
manufactured. And that doesn't mean the Twinkie is bad. It just means
it has more complexity and more things to understand. Try not
to eat the Twinkie. I do think that it's important to note that REITs
aren't alts. REITs are equity. They have equity
beta, they perform like equity, they are highly correlated to
(28:25):
equity, they trade on exchanges, they are tax beneficial
structure. But they very much are no different
than equity in that respect. The diversifying aspects of real estate do not come from
REITs. They come from actually investing in real
estate, whether that be through an interval fund that's doing
private real estate debt through you going and buying property and then
(28:47):
using it for income purposes. But REITs are
not an alternative. There's another
aspect of me that people might not know, but I've been a
trustee of ERISA of funds and public pension funds
for the past 25 years. So 12 billion, 25
billion, a billion, $63 billion. And
(29:09):
we look at all the asset classes that we've been talking
about because we have professional consultants. One is Mercer, one was
Mercer, and we only invest in
REITs tailored to even tax exempt organizations. The
only fund that had actual real estate like
Rich succeeded in is actually in the building
(29:31):
which our offices were in. We own that building.
Rich, you did really well. I am really impressed.
But your individual experience is really
not a lesson for any of us, because what we don't have is a
counterfactual. What would you have, how rich
would you have been with your talent and attention
(29:53):
if you had a more diversified portfolio?
On paper, we would suggest that you would have actually had more
money. Um, but I'm so glad you have plenty of
money. Well, I think in my particular case,
I was never one to say, hey, forget about, you know,
forget about traditional retirement accounts. Go all in on real
(30:16):
estate. You know, cash out your 401k, cash out your IRA, and let's, let's
do this real estate thing. I'd say that about half my net worth is
still in traditional events, investments. You, I think Andy
mentioned earlier something about going beyond the S&P 500 index.
That's where the rest of my money is. I did the whole S&P 500
index in IRAs and 401ks and
(30:38):
normal retirement accounts for the past 25 years. And
I've done very well in that. And of course, as you guys know, that's done
very well in the past just three or four years as well. What I found
interesting that I just noticed today, because I've never been a big REIT
person, but when I did a little research on it, I found that it
was, it outperformed The S&P 500
(30:59):
index over, I think it was 1972 to now. I think
it was something like 12% to 10%.
Now what's interesting also is that in the shorter
term, five years, three years and one year, I think it was 10 years, five
years and one year, the S&P 500 has outperformed. It's
just been a good run. But it's more likely that The S&P 500
(31:21):
is in the near future going to take a massive dip. And those kind
of massive dips aren't as typical with real estate.
Yeah, maybe Shana, I can chime in there. I think that
it's one thing if Nvidia is dominating performance
and you have like the Magnificent Seven, but under more
normal circumstances there's a benefit to having asset
(31:43):
classes that are behaving differently than the S&P
500. So curious looking at your technology
platform, like what are people seeking? Absolute return,
less volatility, what is the goal? The vast
majority of the individuals that use our platform are looking
for risk reduction and income.
(32:06):
And I will say that I spend a lot of time trying to
educate on how those things play in a portfolio. They're
not really, some things aren't really alt stuff, they're just, you know,
a different package like private credit and
private equity. I'm, I'm pretty outspoken about this. If you want the
diversification benefits, the risk management benefits, the things that are in there
(32:28):
are things that are like CTAs and
managed futures are things like
using option overlay strategies to manage downside risk
and equities. It's things. While I am
not a fan of Buffer ETFs, they serve a place.
There are a lot of income related strategies that
(32:51):
are derivative based that generate substantial income
that very much can provide the opportunities
for exposure to equities with substantial distributions of
anywhere between 15 and 18%
based on the option strategies that have long successful track
records. The problem which I think has been touched on here is
(33:14):
that most people don't use them appropriately and size them appropriately in
portfolios. I think it is very
narrow minded and
not fair to say that retail investors shouldn't
have alts in their portfolio. I would argue that anything that
has liquidity limitations absolutely is a different
(33:36):
conversation. But there are a number of strategies that
are quite frankly in the alternative space that are still
publicly traded, fully liquid types of strategies
and in a 40 act wrapper have limitations on them that
really limit, you know, the potential for
too much leverage or lack liquidity. And
(33:59):
I firmly believe that needs to stay that way. There has been talk about
having private credit ETFs which I think is a horrible idea.
There's A reason they should be in interval funds. If you can't mark the market
every day, there's no point. And those markets are
critical to their capital markets. We should be
able to allow individuals to invest and build their wealth
(34:23):
with the same tools that the wealthy do. And by suggesting that they
shouldn't, whether it be in retirement or otherwise, I think is, you
know, kind of like parenting people. The. The goal should
be to as an industry
commit to proper education. And that's something we do at
Bonri. And if you go and watch any of our podcasts or web series,
(34:45):
we do plenty that are not positive on certain alts
and the uses of alts. Roger, you had something to say
and. Andy, you brought up a really good point. Throwing Nvidia in there as
equity, as an equity proxy in. There's a
serious problem with index investing in how they are
structured. And they're essentially momentum strategies. The larger the companies
(35:08):
get, the more influence they have on whichever
index. And it works great. When it works great.
And just like where Shana and her organization works, I think is
important in that people are struggling to figure out
how to have diversification because even in
equities and you could argue, you know, lower credit bonds,
(35:32):
even if there have some mix in correlation, when things
are bad, correlations collide. And that's one of the
problems that alternatives are trying to solve.
And I think that's something we would is we need to
think about and we need to look at the products. A good example I think
Shana brought up was private equity
(35:53):
and credit product in that
traditional finance markets have
abandoned a huge part of the credit market
and that is being who is coming into that are
these private credit vehicles and private lenders because the
major banks, the too big to fail banks just aren't playing in that field
(36:14):
anymore, which creates a big opportunity. So I think
and last point I'll say is I do agree with Shana in terms
of we all should have options. I think we all
should have the ability to have more tools in the toolbox.
And it's reliant upon us and our advisors, if we have
them to evaluate how complicated
(36:36):
or whether we pull those tools out. I think that is always a healthy
thing. But this search for diversification, for
diversification, real estate and alternatives are
ways of trying to find that because they're really not there in equities.
May I just appeal to the parts of your brains, of everybody
on this call, the part of your brains that know
(36:58):
that when we're talking like this, we're talking to the top 5%
that we understand diversity. We actually can take in
education and use it as education and filter out the marketing
part that we can weigh the evidence pro and con.
And therefore I want Shana to come to my to my
trust meetings and sell me an alt, sell me
(37:21):
a reit because I have a army of
professionals to get to my efficient
portfolio. How in the world can we
expect people to get to their efficient frontier
with just another very, very
opaque product when they can't even get to the efficient
(37:42):
frontier with the simple products and transparent products they
have now? So people don't. People
want freedom. Also people want, you know, apple pie.
But when we do the focus groups and I've done, I've
researched my guaranteed retirement assets from the point of view of what people
want over and over again. People say they want their
(38:04):
money professionally managed at the highest
risk, adjusted rate of return, adjusted for
fees and they know what their limits are. They
know they would rather be a nurse or an emergency room doctor and not a
professional manager. All other countries
have retirement money managed by
(38:27):
professionals. Why in the world would we go down this road
and advocate even more complexity when we have a 40 year
track record to know that individuals will get
a much lower risk adjusted fee, adjusted rate of
return if these products are in their
choice set? That's an excellent point. I think that
(38:49):
this podcast could probably go two hours in the interest of
time we're going to go to segment. Three Digital
currencies and blockchain technology are becoming
increasingly relevant in retirement planning. Cryptocurrencies
like Bitcoin and Ethereum have been considered for
diversification due to their potential to behave differently
(39:10):
from traditional assets. Self directed crypto IRAs
now allow investors to hold digital assets within retirement
accounts, offering tax advantages while expanding investment
options. Blockchain technology itself enhances
transparency and security in financial transactions, while
innovations like tokenization provide fractional ownership of
(39:31):
traditional assets, increasing portfolio flexibility.
However, volatility remains a core risk, with
significant price swings potentially impacting portfolio
stability. Regulatory uncertainty also poses
challenges as policies governing digital assets continue
evolving. Experts recommend keeping cryptocurrency
(39:53):
exposure limited to 1 to 5% of a
retirement portfolio, emphasizing long term
strategies and proper due diligence. Despite the
risks, blockchain's ability to streamline processes and
enhance asset liquidity makes it an emerging consideration
for forward looking retirement strategies.
(40:18):
I don't know where where our panelists fall
on crypto. I'm going to ask the same question of all of
you. Do you see digital assets as a short term
trend or A lasting component that should be included
in retirement planning. Roger, you want to kick us off?
My opinion on crypto, I have no idea. I have no
(40:41):
idea. But I think of it
in two buckets. One is if you have won the game and you
are overfunded for your retirement and you want
to have a portion to crypto to see if it's the
next thing, go for
it. If you are constrained in
(41:03):
your assets relative to your spending and
or underfunded, I don't think it's a good
bet to try to go into an emerging
field to catch up. You know, when you're down, you double up the catch
up. I think that's not necessarily a good strategy. You
actually conversely have to get a little bit more conservative because you can't really afford
(41:25):
to lose your money. I don't have any strong opinion about crypto
other than if you can afford it and you want to have a 1 to
5% allocation which isn't going to make a difference in any portfolio, really
go for it. But it's not a way of solving
the under savings for whatever reason
in terms of making a resilient retirement. So don't gamble
(41:47):
just because you can. Teresa, what are your thoughts?
Yeah, it might be fun to be to buy a bansky, you know, to
buy an antique, to buy a crypto, but
it is probably not appropriate in your
retirement portfolio no matter what age you
are. If it's a tiny little bit, just know you're playing with
(42:09):
money. Crypto is not good for much
except for speculation. It's sold as an
alternative to money and transactions currency, but it's way
too volatile for even that. So if you have
a stomach for this kind of volatility,
play with it like you would in Las Vegas. I would think Las Vegas would
(42:32):
be more fun. Shana, your thoughts?
So I, as I'm sure anybody who's watching
and listening knows at this point, I'm going to say that I,
I think crypto has a place I am
concerned that people don't understand the risks associated with
it. But I disagree that it's a speculative
(42:54):
asset that has no real value. Crypto's value is
inherent on the blockchain which actually has
purpose. It's a protocol like voice over
IP is a protocol like HTTP that created the Internet as a
protocol. Blockchain is a protocol that serves
a purpose and the crypto assets are necessary for these
(43:15):
blockchains to work effectively. The problem is that
the industry has introduced a lot of just
crappy coins that are out there looking for assets that don't
have a use case and don't have a blockchain. Dogecoin is a great
example of that. And there's a new one every day. Digitization
of assets I think has value. You know, we, we're seeing it
(43:38):
in a major way. I think crypto really
requires a deep and knowledgeable
understanding and that people shouldn't be doing it willy nilly. It's
very volatile, but I'm not negative
crypto. I include it in some of our alt portfolios and what I
call our alpha, which is meant to have a little bit more
(44:00):
risk. They certainly have diversification benefits if you can stomach the
volatility. But I would argue that there's a number of mutual funds and
ETFs out there that also are just equities,
leveraged equities that two times levered and things of
that nature which are equally as volatile. It's an asset class
that I don't think you should go into without working with somebody who
(44:23):
understands it professionally. And I think unfortunately
right now there's an entire generation of investor, the younger
investor, that their first introduction to investing
is happening through crypto. And you know,
they think this is the get rich quick status. But as it
becomes further and further adopted and regulatory function comes into it,
(44:44):
it's not going to be the same. But the risks associated with it, especially
this risk associated with lack of diligence,
is definitely problematic. Yeah, it's a good point. I think
it's very different, especially if you're just getting started investing,
picking a blue chip stock that has very consistent
earnings versus going for crypto that can be highly
(45:07):
volatile rich. Have you personally explored
any digital assets? So I haven't.
And I think when this all started to explode, I can't remember how long ago
it's been, I don't know, six or seven years ago when it seemed like
I'm in a lot of like conservative investor groups. One of them was called
Choose a five. And I was just kind of always like one of the
(45:30):
people that contributed. Well, eventually the popular popularity
of crypto got to the point where even in these conservative groups everybody
was like, hey, we got to get into this, we got to do it. Like
this is, we're losing out, you know, and I kind of always fought
that and I sort of almost left the group.
And I think that around that time things just sort of fell out of
(45:53):
crypto and not, not much happened with it. And a lot of people in those
conservative circles kind of gave up on it. I think
it's too, you know, it's just too new
and too unproven to think of as a
retirement asset. I have to agree with this idea that
I'd even say 10%, you know, if you have the money, you
(46:14):
think this is the next big thing. I think
this could really be something. I believe in it. I believe in these people that
are leading this effort to reorganize the way that money
is handled, invest 10% of your money in it. If you're
right, that money will do a lot better than the other
90% of your portfolio. And of course, if you lose that,
(46:36):
you're not ruined. But I think on average, there's a
lot of. And I mean, everybody's alluded to this. Every person and every
person on the panel said this. There's just a lot of maybe people that don't
understand it or people that are susceptible to marketing,
that are misunderstanding the risks
and are jumping in the crypto, especially the bad coins or the
(46:58):
celebrity coins and losing money.
Barbara, as a former portfolio manager,
curious what your thoughts are and how does one assess the
risk versus reward when considering something like
cryptocurrencies? Well, the upside is
huge, as we've all seen, but the downside is
(47:19):
zero. So the question is, do you
want to gamble on the
possibility that crypto is going to.
I'm going to say bitcoin, because bitcoin is really the only
crypto I believe is even close to legitimate
today. Do you want to gamble that you have
(47:41):
a, you know, a decent likelihood of
increasing your money exponentially and a much
smaller likelihood of going to zero? I'm going to put
it out there. Don't invest in crypto. Sure wish I had.
When it was selling at
14,000, I said to myself, God damn it,
(48:03):
I've got to get in now. But I didn't.
And I think everyone has time to get in on it because
it is still super, super new. And the idea
is when I see a real viable use
for it, I get blockchain. I think blockchain is wonderful. It has a
tremendous amount of uses. I'm still not understanding
(48:25):
practically what is the use of
bitcoin. Thank you for
that. Probably the most honest answer
that could be said. So appreciate that. Let's go
to segment four. Environmental, social and
governance. Investing continues to gain momentum as a strategy for
(48:47):
retirees seeking both financial returns and alignment with
personal values. ESG investments. Consider a company's
environmental impact. Social responsibility in governance
practices alongside financial performance. By
2025, ESG related assets under management in the
US are projected to reach $52.5
(49:08):
trillion. This strategy offers potential benefits such
as competitive returns and risk mitigation, as companies with
strong ESG practices may be better positioned to manage
regulatory and reputational risks. However,
challenges remain, including inconsistent reporting standards
and the risk of greenwashing where companies exaggerate their
(49:29):
sustainability efforts. Retirees can adopt ESG
strategies by diversifying across asset classes, conducting
due diligence on ESG ratings, and actively participating
in shareholder advocacy. With proper research,
ESG investing can balance financial security with the pursuit
of positive societal and environmental outcomes. Foreign.
(49:58):
Do you think that ESG considerations are becoming
a standard or having influence in the alternative investment space?
Or is there resistance? So
I think esg, we've all talked about marketing here.
ESG is a marketing tool. But I do think that
investors would like to align their investments with the things that they
(50:20):
have. They can or their core values. And alts can
very much do that. So I'll give you an example.
We talked real estate. If you really want to improve your
community, maybe you look at things like workforce housing, maybe you look at things
like, you know, we, we looked at a fund and brought it to some
advisors that was partnering with, you know, the
(50:42):
city of South Bend to completely revamp
and improve the living conditions and
public housing and provide them with better services and the like.
And it was a co investment. It was hugely
successful. That aligns with a lot of people's values. Things
like, you know, micro financing for female entrepreneurs
(51:04):
and you know, very poor countries. Those are the
types of things that people want to align themselves with. They in
my mind are value based investing. But ESG as an
idea is really just the definition is
not agreed upon. In many ways what
had become was it became a marketing term and anything
(51:26):
anybody who signed the UN pledge could say
that they were esg, even if they weren't actually investing in a manner that aligned
with that. Teresa, you teach a class
socially responsible investing history, theory and
practice. Are ESG investments a
luxury for the wealthy or can they be inclusive for
(51:48):
everyone? We had, we just had Stuart
Kirk, who is a Financial Times
columnist and got fired from HSBC
as a longtime money manager and global and the head of
global responsibility for ESG because he was critical of
ESG. So I agree 100% with
(52:09):
Shana that and so does a Texas judge
yesterday who found for a pilot who sued
American Airlines esg, but
not but for the wrong reasons. ESG is an inconsistent
criteria to screen companies.
Look, you could screen companies with esg,
(52:30):
but if the company that doesn't meet has allowed the ESG
score is actually really cheap. That fund will buy
it or it's a divestment
tool, which means that your portfolio really does get
a inferior risk adjusted rate of return.
Shana is so right. And I lived in South Bend for 25 years teaching at
(52:52):
the University of Notre Dame, that impact
investing is really much more promising. There is
so many interesting things we do with a bond
secured with bonds, impact bonds, and also
with securitization, other even kind of equity products.
So I agree 100 with Shana.
(53:13):
All right. Roger, have you noticed demand
happy that we have some.
We have peace agreement here. I'm interrupting your question,
Andy. We have peace and harmony. Do you see rising demand
for. No, I don't see any at all. I don't see any at
all. Where we approach it
(53:35):
from is from the ground up. And this is an interesting. When
we talk about, you know, education on alts or other topics,
it's from the top down or the bottom up. And I think there's obviously
been some debate here about that. But we think about ESG or just doing
good in the world from the bottom up. And I think of a charity that
I've supported in Chicago, which I believe you're from, Shana, called My
(53:58):
Block, My Hood, My City, which works in inner
city starting from the ground up to try to create real change.
And I think that's where ESG or doing good really hits,
really makes a difference. Barbara, your thoughts?
You know, I'm on the board of the investment
(54:19):
committee at my synagogue and we have a mission that we have to
invest our funds in
sustainable securities. My personal belief
is it's really tough
to measure. And I really kind of like what
Roger said. It's like I am a big
(54:40):
supporter in improving our world, in
helping improve climate change. Of all those things with
my money, with my charity, etc. With my
investing, I'm not so sure sure
how easy it is to do that
accurately.
(55:01):
Fascinating. Shana, I wanted to ask you because it's
sort of open ended. You had mentioned like four alts in a
portfolio. What percentage is a
good rule of thumb? So I'm gonna have to run as soon as I
answer this question because I have a client meeting right at the top of the
hour. But I will say this. It depends. There's two
(55:22):
types of alts. I've talked about this. Private equity and private credit are conversations about
liquidity and they belong in your equity and fixed income
allocations, not in your alternatives allocation
diversifying alts, which can be Highly liquid things like managed
futures, options overlay strategies, equity market neutral, things of
that nature. The evidence really suggests that a
(55:44):
20% allocation in that space, mostly coming out of fixed
income, is kind of the optimal way to do it. Anything
less than that, it doesn't really have the diversification benefits
and doesn't really make a difference in risk. But a 20
allocation typically will improve your risk
adjusted return in a meaningful way. But it can't be one alt.
(56:06):
It has to be. We talk about building equity, we talk about building fixed
income, we don't teach anybody how to build alts.
It's not one size fits all. It's not just, oh, all right, 20%
of managed futures. It needs to be built with the same thoughtfulness
that exists in the traditional spaces, but
20% in the diversifying alt, I. E. Things that are
(56:29):
not highly correlated to equities and fixed income, like private credit and equity,
is generally the optimal range that we see.
Bye, Shana. Sorry, everybody.
Really great, Teresa. Thank you, Shana. Rich, any closing
thought on this topic?
Well, I mean, I feel like there's a lot of agreement on this topic,
(56:52):
but I think for me personally, and I kind of like, I don't know, again,
I'm around, I think I'm around other investors a lot. I'm in groups with
other investors. There really isn't
a large appetite for worrying about this too much. I think
that it sounds good, it briefs good in certain cases, it
sells, but it's of
(57:15):
zero interest to me.
That is great. I'm going to leave it there because
the top of the hour came really quickly and many of our panelists have
other time commitments. We're dropping the last segment, but I've got
to say that this was a really incredible conversation today.
(57:36):
It reminds me that the key to growing wealth, especially
retirement, isn't just about choosing the right
assets. Yeah, it's so much about education,
because when we talk about alternative investments and choice,
increasingly it just seems that we have more choice today.
And sometimes that's a great thing and other times it's
(57:58):
not. So educate yourself, think about
diversifying and being intentional with your choices
and what makes sense to you. I think it's important to understand
as best you can what you're investing in. And
so as a call to action, take a look at your current
retirement plan. Identify one area where
(58:20):
maybe you could diversify or maybe you shouldn't diversify.
Think about things like real estate, exposure to esg,
to digital assets, and have conversations
with your spouse, with your family members, with your friends. To
talk about what makes sense. And I
think that having that conversation and seeking to educate
(58:42):
yourself, that's going to make a big difference to your retirement
and your financial future. If you need help with aligning your
investments with your goals, remember that I'm here for you. You can go
to InspiredMoney.fm/GetPlan to do a 3 minute plan
and get started today. Thank you to our
panelists. Shana Orczyk Sissel, you
(59:05):
can find her
at shanasissel.com. Roger Whitney, the retirement answer
man. You can find him at rogerwhitney.com.
Teresa Ghilarducci, thanks so much
for sharing all your insights and knowledge. I know that there's
so much more. We could have gone like five hours. But you can,
(59:26):
you can find
Teresa
at teresaguilarducci.org. Rich Carey, you can find him on YouTube and
TikTok RichonMoney. And finally, Barbara
A. Friedberg, Barbara A. Friedberg.
Check out her books and visit her YouTube channel and
(59:46):
https://barbarafriedbergpersonalfinance.com for more information.
Thank you inspired money makers for joining us today. Thank you to the
panelists. It was a very insightful and
thought provoking discussion.
I encourage everybody to join us. Next week we have another
Inspired Money episode. The topic is the Power of
(01:00:09):
Philanthropy Making a Difference Through Charitable Giving.
That will be on January 22nd at 1pm
Eastern. Until next time, do something that scares you because that's
where the magic happens. Thank you so much, everyone.