Our Top 5 Alternative Investments

Alternative investments; 401k rollovers

 

The American people have been trained and  taught to believe that the roller coaster ride of ups and downs in the stock market is required to build wealth. But believe it or not there are alternatives to save and invest outside the stock market, people just aren’t aware of the other options. We name our top 5 here.

What’s so wrong with typical financial advice anyway?

Typical financial planning assumes that you will lose money, and that the more you’re willing to lose, the faster your portfolio is likely to grow.

We have been conditioned by risk assessment profile questionnaires to think “safe” or “predictable” equals a low return on investment, and high risk equals high reward. But perhaps… the way I see it, the more we are willing to tolerate losing, the greater chance we actually have of loss!

Typical financial advice presents limited options. Essentially, the questions on the risk tolerance forms are asked to determine the appropriate ratio of stocks vs. bonds, as if stocks and bonds are the best, or only, valid investments.

Conventional wisdom, touted by wall street and big corporations is predictable: unless you’re very close to retirement or extremely risk averse, you’re told you better be mostly in stocks or stock mutual funds.

Unless you have the ability to earn and save (or perhaps inherit) very large sums of money, typical financial planning offers you no options to grow your money other than to place it in the Wall Street Casino and roll the dice.

When it comes to your future, and your hard-earned money, do you really want to rely on speculation? Do you really want leave it up to the big corporations to do what’s best for you?

Or… would you prefer investments with predictable gains secured by real assets?

 

Life Settlements: 

They allow investors to earn low double-digit returns with NO exposure to ANY market volatility!

In 1911 Life Settlements were recognized as a legal transaction by the Supreme Court. They ruled life insurance is your personal property, and an insured has the right to sell, gift, or assign anyone as their beneficiary.

This little-known investment provides a way for investors to benefit from the secondary market for life insurance policies.

Life Settlements are a win win. They create a solution for seniors nearing life expectancy who no longer need or want their life insurance policies, turning a death benefit into a living benefit they can use. For investors, life settlements offer excellent rates of return based on actuarial math and insurance contracts, and are NOT affected by financial markets, political events, or interest rates.  

Most typical investors try to “GROW” their investments, hoping the value of their investments goes up. With life settlements, investors BUY assets (or funds that buy assets) with a knownfuture value. Big difference.

Characteristics:

  • Secure. Backed by top rated insurance companies.

  • A non-correlated asset class. Unaffected by market volatility, housing market, etc.

  • Longevity risk. Policies can extend beyond life expectancy.

  • Long term. 4-10 year payout window.

  • Growth. Provides healthy returns. High single and low double digits.

  • No Parity of Risk. You don’t have to take on additional risk to take on a higher return.

  • Not Liquid. Payouts occur when policies mature.

For accredited investors. Which means, you must have a net worth of $1 million or an annual cash flow of $200k or $300k for couples to purchase the private equity funds which hold life settlements. Required minimum investment is $50,000. This strategy can be used outside of or inside a retirement account, utilizing a self-directed IRA.

Commercial Mortgages and Bridge Loans:

Commercial mortgages and bridge loans are types of private lending contracts. No bank is involved. A good option for investors looking for immediate, steady, substantial income. Private lending is good for real estate investors because they are looking for cash to buy property due to how difficult it is to get a traditional loan from  bank. They provide temporary financing for periods up to 1 year.

Investing in carefully screened commercial mortgages and bridge loans can provide you with reliable monthly income with high single-digit and even low double-digit returns, with extremely low risk.

These reliable monthly income payments come directly from the company we recommend, not the borrower. In most cases, the company that sources and services the mortgages holds a secondary interest. This assures that the underwriting is conservative and that your best interests are represented.

This type of investment focuses on increasing cash flow now and in retirement. By generating cash flow now, you’ll build financial confidence as well as additional wealth.

Characteristics:

  • Your funds are secured with a high-value real-estate asset.

  • Loan to value ratios are low – 65% or less, allowing for market fluctuations. Properties are valued and vetted by a team of lending experts.  

  • Your money begins earning monthly payments immediately. Payments come directly from company that underwrites and sources loans and your contract is with them, not the borrower.

  • Although private investment mortgage funds can provide income for years, the underlying notes are held short-term (usually one year) to minimize risk in the event of a market downturn.

  • You can invest outside of a retirement account, or inside a self-directed IRA.

The downsides are that there is a learning curve with bridge loans, and you want to make you work with companies who operate to industry best practices, not all do. We are very picky who we work with. We work with companies for both accredited and non-accredited investors.

Peer-to-Peer (P2P) Lending:

Similar to bridge loans in that this type of investment provides for both additional cash flow and growth. What it does, is it cuts out the middleman, the banks and credit card companies, and instead people lend to others using online websites like Prosper.com or Lendingclub.com.

Typical returns investors are experiencing range from high single digits to low double digits. You can either set up specific criteria and have a computer pick loans that fall into categories you want, or you can have more of a hands on approach and do all the legwork yourself.

The minimum investment to get started is $2,500. You can spread out your investment over as many loans as possible with a minimum contribution of $25 each. The websites classify, pretty clearly, on a typical return you will receive related to someone’s’ credit score range. The higher the score, the less of a return. The lower the score, the greater the return.

Peer lending provides consistent market neutral returns. If you do go this route, we recommend investing no more than $100,000 in order to maximize your loan diversification and avoiding loan defaults (investing more, we recommend the bridge loan route mentioned previously). You can invest inside and/or outside of a retirement plan.

Real Estate:

A time tested method to building additional income and wealth. Cash flow from rental properties have a proven track record. It’s a good hedge against inflation. Under current tax law, there are great deductions you can have while owning a rental property as well. Your main concern when looking for rental properties should be on cash flow, not on trying to determine if the property will appreciate. It is better to start off small; rent out your old home while buying a new one. Learn the how-to’s of owning these types of properties, as in DIY (to lower costs)and who to hire for a handyperson, to real estate agent and attorney. Unexpected circumstances can happen, so it’s good to have cash at hand.

High Cash Value Life Insurance:

Life insurance (particularly whole life and indexed life) is a great place to save your money. Now we say “save” and not “invest”, because these types of life insurance contracts are not classified as investments per say; it is more appropriate to compare cash value to safe, liquid, investments that cannot lose value.

Permanent life insurance can be “custom designed” to maximize death benefit or cash value build up. The latter will provide you much more immediate access to cash and a lot better return throughout the lifetime of the policy.

Characteristics:

  • Competitive returns. When held for long term, provides a way to outpace inflation and has no downside risk.

  • Flexible Funds. You can use the cash value when you want and for any reason like major expenses or investment opportunities.

  • Privacy and Asset Protection. The cash value accounts are not reported to the IRS, not counted as assets for college financial aid, and protected from lawsuits and creditors in most states.

  • Tax Advantaged. As long as the policy is designed properly and you don’t cancel it, there won’t be any income taxes on the cash value, the death benefit, or the money borrowed against them.

  • Financial Legacy. Creates an immediate estate to leave to your heirs, charity etc.

Life insurance requires little money to get started and no lump sum. You can begin with monthly payments, tailored to your situation, whether it’s $50 per month or $5,000 per month. If you are looking for immediate cash flow, this would be the wrong fit, read above for our recommended strategies.

Are you tired of following the crowd? Do you want to invest beyond the stock market?

If you’re interested in finding out more on any of these strategies, feel free to contact us.

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