Are you interested in receiving income without dipping into your principle? Are you worried what you would do if the market declines and you are using the old "4% Rule?" At Select Wealth Management, we have a different philosophy to generating income for your portfolio. Instead of relying on a volatile portfolio of stocks, bonds, and cash for your income -- consider alternative or non-correlated investments.[1]
Our goal is to provide you with income that you can rely on. We attempt to take the ups and downs of the stock market out of the equation. These instruments are NOT guaranteed investments, but they do not fluctuate in value on a daily basis like your equity portfolio. Instead, with a diverse assortment of alternative or non-correlated investments, we can utilize a portion of your investable assets to generate income you can rely on.
Below are some brief descriptions of a few of the alternative investments that we use to help you achieve your income goals:
REITs
A Real Estate Investment Trust or REIT is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. Because REITs must pay out almost all of their taxable income to shareholders, investors can look to REITs for reliable dividends.
Analysis of historical data concluded that the relatively low correlation between REITs and other stocks and bonds makes them a powerful diversification tool. In particular, Ibbotson Associates found[2]:
• REITs offer an attractive risk/reward trade-off
• The correlation of REIT returns with other investments has declined over the last 30 years
• REITs may boost return and/or reduce risk when added to a diversified portfolio
Any investor can build greater long-term wealth by combining homeownership and REIT stocks as part of a diversified investment portfolio.
The goal of the REIT is to pay the annual dividend, repay your principle, and distribute any gain of appreciation on the sale of the asset.
Collateralized Note Obligations
A collateralized note is simply an asset-backed "promise" to pay at a later predetermined date. The note is typically secured by equity in another property or it could also be secured by the net worth of an individual. The maturity dates vary from note to note -- it can be as short as 3 years or up to 10 years. A collateralized note yield is typically much greater than a traditional bond or CD. However, there is not an open market to sell the security which can create a liquidity issue should the funds be needed immediately.
Equipment Leasing
Equipment leasing programs will either acquire leases from large financial institutions, such as GE Capital, or they might choose to originate the lease. For most investors, equipment leasing provides a new experience into a non-correlated asset class. For a more detailed explanation, please contact us.
[1] Note: Alternative investments and non-correlated investments are not suitable for everyone. Alternative and Non-correlated investments are not guaranteed to benefit a portfolio. Certain suitability standards must be meet in order to invest in the alternative and non-correlated investments. This publication is provided for general information purposes only. Select Wealth Management does not intend for this article to be a solicitation related to any particular investment, nor does it intend to provide investment advice to investors. Nothing herein should be construed to be an endorsement by Select Wealth Management of any specific investment. Past performance is not indicative of future results. Investors should consider investment objectives carefully before investing. Please read the prospectus carefully before investing.
[2] NAREIT Index
