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CNBC
a day ago
- Business
- CNBC
Financial advisors are turning to this asset class for diversification and stability as uncertainty rocks markets
Alternative investments are gaining traction among financial advisors who are seeking diversification just as rising geopolitical tensions and shaky tariff policy rattle stocks. A survey of nearly 200 financial planners by the Financial Planning Association and the Journal of Financial Planning from March 23 to May 4 found that while these investments aren't in widespread use among advisors, they've seen significant growth compared to last year. More than 17% of the advisors are incorporating such options into their practice, nearly double from last year, the poll found. Some 23% are using individually traded real estate investment trusts, up from 14.9% in 2024. More advisors also embraced private debt, with about 19% of participants saying they're turning to this asset class, compared to 12.5% last year. The results arrive as investors grapple with an S & P 500 that's up just 2% this year, and volatile movements in Treasury yields, as well as escalating conflict between Israel and Iran. "This use of alternatives as an asset class is a natural evolution in the process of bringing greater diversification and greater consistency of portfolio performance as a whole," said Paul Brahim, certified financial planner and managing director at Wealth Enhancement Group in Pittsburgh. He is also the 2025 president of the Financial Planning Association. An evolution of the 60/40 allocation How advisors implement alternatives in their practices will vary, but they tend to see it as a complement to investors' asset allocation – rather than a complete overhaul of the split between stocks and bonds. Brahim said that the 60/40 model that's typically split between stocks and bonds has evolved to include exposure to domestic and foreign assets, a range of market capitalizations, different flavors of fixed income and now alternative investments. Jon Ulin, CFP and managing principal at Ulin & Co. Wealth Management in Boca Raton, Fla., said that his practice has transitioned from a 60/40 allocation to a 50/30/20. The 20% portion is split among structured notes to offer downside protection and income, as well as private credit, private equity, real estate and commodity ETFs. "We aren't reinventing the wheel, but instead we're trying to smooth out people's results," he said. Key considerations for investors hoping to dip a toe into alternatives include correlations in price performance versus other asset classes and strategies, the use of leverage — which can magnify gains and losses — access to liquidity and fees, Brahim said. "The objective of alternatives is to reduce overall portfolio volatility to create more consistency in returns so that we get better compounding," he said. Access through ETFs Esoteric products like structured notes and private credit may not be easy for individual investors to access, but retail investors can tap into alternatives through exchange traded funds. "If you've never done alts before, the best way is to use the ETFs that are within the scope," said Shana Sissel, founder of Banrion Capital Management. Her firm, based in Glenview, Ill., provides financial advisors with a platform for incorporating alternative investments into their practices. Sissel said that in a hypothetical situation, an individual with a $1 million portfolio might earmark $800,000 to a 60/40 strategy and direct the remaining $200,000 into alternatives. She likes ETFs that are "hedge fund like," calling out AGF U.S. Market Neutral Anti-Beta Fund (BTAL) and the Clough Hedged Equity ETF (CBLS) . When strategies incorporate options, she prefers that they be focused on hedging market risk, rather than providing income. .SPX BTAL 1Y mountain The S & P 500 versus the AGF U.S. Market Neutral Anti-Beta Fund (BTAL) in the past 12 months BTAL aims to provide negative beta exposure to U.S. stocks – meaning, it strives to move in the opposite direction of the market. In 2022, BTAL did just that, rising around 20% while the S & P 500 tumbled more than 19%. This year, with the broad market up a mere 2%, BTAL is off about 1%. CBLS holds a portfolio of long and short positions and seeks to minimize volatility. The fund lost more than 11% in 2022's tumult, but it's up more than 8% this year. Pricing will vary for these strategies: CBLS's total annual fund operating expenses add up to 1.90%, while BTAL's fees weigh in at 0.45%. "I want to look at the strategy and how it correlates to fixed income and equities," Sissel added. "These strategies could be doing different things, but the role they play is as a diversifier."
Yahoo
29-05-2025
- Business
- Yahoo
The guy behind retirement's 4% rule now thinks that's way too low. Here's how much more money you could spend.
When Bill Bengen introduced the 4% rule in 1994, he had no idea it would take on a life of its own in scholarly debates, the media and public discourse. Now, after having what he calls an 'aha moment' about three years ago, he has revised his trademark rule to be more generous. The 4% rule originally comes from a 1994 study Bengen did that appeared in the Journal of Financial Planning. His rule suggested that retirees should be able to withdraw 4% of their savings and investments in their first year of retirement and then adjust it based on inflation until retirement. The idea was that using that formulation, a retiree could live 30 years without running out of money. 'You never know what might happen': How do I make sure my son-in-law doesn't get his hands on my daughter's inheritance? Trade court strikes down Trump tariffs: What it means for markets — and what's next My ex-wife said she should have been compensated for working part time during our marriage. Do I owe her? The best scenario for 2025 is stocks go nowhere, says this strategist. Here's where he says to camp out instead. 'Is this a good tax strategy or a sham transaction?' My mother wants to give me her home. I have a plan to avoid taxes. The original number was 4.15%, but it was rounded to 4% — and the rest is history. Until now. 'The last book I wrote was 2006 — 19 years ago — and I've learned an awful lot since. I had a breakthrough about three years ago that allowed me to offer people a rational, scientific way to choose different withdrawal rates. Prior to that, I had no way to provide a rational, straightforward way to say, 'Sure, you can take 6% now or 7% now,' ' Bengen, 77, told MarketWatch. 'I remember it so clearly. I was sitting at this very desk I'm at now. I said to myself, 'Wait a minute. I've been putting stock returns first. What if I put inflation as the most important thing?' … Well, the minute I did that it fell together. … Years of failure just evaporated in just a few minutes. It was one of the most remarkable moments of my life,' Bengen said. That moment was the birth of a new, more generous rule of 4.7% and the origin of Bengen's new book, 'A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.' Bengen said he previously wrote for the professional community but wanted to write this new book for the general public — the people who, he said, have labored and saved their whole lives. 'I'm retired now from financial advising but I still get an awful lot of mail and text messages and emails from nonprofessionals asking me questions. So there clearly is a lot of interest,' Bengen said. 'If you can't explain something to folks, you probably don't understand it well. I had about 30 years to understand this so hopefully I can explain it in a straightforward way.' Under the new rule, someone with $1 million in savings and investments could withdraw $47,000 in the first year and adjust that for inflation in subsequent years over the course of retirement. Bengen said he's 'constantly' amazed by the attention his original 4% rule has gotten. 'There's tens of millions of people to whom this is a very, very important issue. But, still, I'm just little old me as a sole practitioner working in his office — it's pretty astounding.' Under the original rule, he used a simple portfolio of two asset classes: U.S. large-company stocks and U.S. 5-year bonds. Over time, he built a more sophisticated and balanced portfolio by using U.S. large-cap stocks, U.S. midcap stocks, U.S. small-cap stocks, U.S. microcap stocks, international stocks, intermediate-term U.S. government bonds and U.S. Treasury bills. That diversification lifted the 4% rule to 4.7%. He fiddled some more and found that adding even more asset classes — such as gold, commodities, real estate, and emerging-markets equities — didn't make a big difference. In addition to diversifying, Bengen urges investors to rebalance their portfolios each year. Bengen calls the 4.7% rule the worst-case scenario that would have allowed a retiree who stopped working in October 1968 — and faced a bear market and high inflation — to not outlive their money for 30 years. Out of almost 400 investors he studied, only that one investor had a safe withdrawal rate as low as 4.7%. For the rest of them? The average safe withdrawal rate was 7%, Bengen said. 'Although you can call it a 4.7% rule for ultraconservative people — if they wanted to be the safest that's ever been in history — but for most people they'll end up with a lot of money and probably a lot of regrets at the end of retirement and wishing they'd spent more earlier,' Bengen said. 'You have to look at the circumstances at when you retired,' Bengen said. Given today's financial environment, Bengen said he sees inflation as fairly reasonable but stock-market valuations as very high. As a result, he would advise a retiree stopping work today to withdraw 5.25% to 5.5% and safely have enough funds throughout 30 years. 'We're nowhere near the dire economic straits that we saw in the 1970s, which caused that 4.7% rule. I hope we never see it again. Those were awful times,' Bengen said. Bengen said he knows people will pick apart the new rule of thumb. His original 4% rule prompted a death threat, he said. 'Some people were very unhappy. There were some pretty strong emotions when I did that first work,' Bengen said. 'They've always had questions about it, and some of them were very valid. I like to see people ask questions and challenge authority because that's how we move ahead in our knowledge. I've always enjoyed talking to folks about my research and my work and sharing ideas.' Bengen said he follows his own advice. When he retired in 2013, his research called for 4.5% as the worst-case scenario. 'Turns out, I could have taken out more,' he said. Investors who followed 'sell in May and go away' are missing what could be the best May for the S&P 500 in decades Nvidia's earnings are the stock market's next major test after May's Big Tech comeback It's my dream to travel to Africa. My husband says it's not on his bucket list. Do I pay for him or go alone? After 25 years, I finally asked for separate checks — and my friends iced me out. Did I do something terrible? Nvidia results are proof the tech sector is worth investor loyalty, says strategist who recommended buying at April lows Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Miami Herald
14-05-2025
- Business
- Miami Herald
Workers struggle with one big problem when they retire
Many Americans may feel financially prepared for retirement, but the emotional transition and rising health care costs remain significant hurdles, according to a recent survey. The 2025 Trends in Retirement Planning survey report, released by the Financial Planning Association (FPA) and the Journal of Financial Planning with support from Finance of America, gathered feedback from 167 financial planners to offer insights into evolving retirement challenges. And here's what they found. Image source: Koslov for Unsplash There's a striking disconnect between financial and emotional preparedness. While over half of planners feel their clients are financially ready for retirement, only 11% believe those same clients are emotionally prepared. The survey found that nearly 60% of planners indicate clients are only moderately emotionally prepared, and 5% believe clients are not prepared at all. According to the report, clients often grapple with fears about: Adapting to no longer workingLosing their sense of identityPotentially becoming a burden to loved ones Don't miss the move: SIGN UP for TheStreet's FREE daily newsletter "Studies show that while health and wealth are vital for a successful retirement, being mentally and emotionally prepared is more critical," said Mitchell Kraus, a certified financial planner with Capital Intelligence Associates. "No matter how financially ready an American is to retire, their retirement can lead to a shorter and less fulfilling final chapter if they are not emotionally prepared." Jim DeGaetano, a certified financial planner and author of "The Fruitful Retirement," draws this parallel: "The emotionality involved in leaving one's life work cannot be understated. In fact, as I discuss the four stages of retirement in my book, there is a similarity to the phases of grief and loss. Wealth advisers must understand how critically important it is for their clients." As a result, financial planners are increasingly going beyond managing money to help clients address these significant emotional and lifestyle adjustments. "Being emotionally prepared is almost as important as being financially prepared," said Kris Etter, a certified financial planner with Beacon Financial Planners. "Life does not stop happening just because you retire." Financial advisers across the country are developing innovative approaches to address the emotional aspects of retirement. Their strategies offer valuable insights for those planning this major life transition. Related: Medicare recipients face a growing problem David Demming, a certified financial planner with Demming Financial Services, believes in gradual transitions, recommending "phasing down rather than abruptly retiring to adapt emotionally as well as financially." Rather than a complete stop to working life, he strongly advocates for "partial employment" with a refreshing philosophy of "work for play, not pay." Building on this approach, Catherine Valega, a certified financial planner with Green Bee Advisory, emphasizes that having sufficient finances isn't the complete picture: "Even those with enough money – that is not enough to maintain health both emotional and physical during the possibly several decades spent in retirement." To address this gap, she's developing a practical solution to help people "test-run their retirement lives" before fully committing. Rob Schultz, a certified financial planner with NWF Advisory Group, reinforces this approach: "Scaling back work tends to be successful because it gives you a trial run at what it would be like and you can see if you like being retired without fully committing to it. Once you are out of the workforce, it can be tough to re-engage." While some advisers focus on transition strategies, others like Ed Snyder, a certified financial planner with Oaktree Financial Advisors, takes a proactive approach from the very beginning by asking "prospective clients in their first meeting what their retirement lifestyle looks like for them." This early visualization helps clients prepare mentally as he guides them to "imagine what kinds of things they will want to be doing" and consistently encourages them to "stay active and involved." Patti Black, a certified financial planner with Savant Wealth Management, frames this proactive approach by "encouraging clients to know what they are retiring to, not just what they are retiring from. What is their purpose in retirement, their reason to get up and get going every day?" She's even working to shift the perspective "from 'becoming a burden' to 'becoming a blessing.'" Taking this comprehensive approach even further, Juliette Williams, a certified financial planner with Wealthspire Advisors, thoroughly goes "beyond the numbers" with her clients. She facilitates deeper conversations through targeted questions including: "What does it feel like to spend your days and nights together, as opposed to only your evenings while you are working?""What does a regular day/week look like in retirement? How do you plan to spend your time?""How do you think you will feel about no longer being known as whatever it is they do for a living?" Marcos Segrera, a certified financial planner with Evensky & Katz/Foldes Wealth Management, takes an innovative linguistic approach by "intentionally reframing 'retirement' as 'repurposing'" to encourage clients "to view this significant life stage not as a passive cessation but as an active, deliberate redirection of their accumulated energy, wisdom, skills, experience, and passions towards new or redefined goals." Related: These are the most tax-friendly states if you work in retirement Williams summarizes the philosophy that connects all these approaches: "I often tell my clients that the numbers will work out because they've been working toward the numbers all of their lives. I want to ensure that the life part works out as well as the numbers." Edward Thomas, a certified financial planner with Savant Wealth Management, puts it even more succinctly: "It is more behavioral coaching than financial." Prepare emotionally and financially. Retirement is a significant life change that requires reflection on what life will look like beyond work. Consider hobbies, social connections, and how you'll structure your time. "Retirement readiness goes far beyond numbers," said Nathan Sebesta, a certified financial planner with Access Wealth Strategies. "Emotional preparedness and clarity on how you'll spend your time are just as vital." Laura Mattia, a certified financial planner with Wealth Enhancement Group, stresses the importance of personalized planning: "Decisions regarding retirement are not just about the number of years worked or the age they aim for. There is no formula or one-size-fits-all answer." She recommends a six-step approach that begins with exploring "plans in retirement to pursue a new or continued passion, utilize skills, stay social, build relationships, and maintain health." DeGaetano offers a helpful framework through his "A Happy Retirement Is Freedom" acronym, which covers five essential factors: Activities: How you'll spend your dayHealth: Staying active and healthyRelationships: Nurturing connections that bring joyIntention: Both spiritual and personalFinancial security: The foundation for freedom Kraus recommends starting early: "Start talking about retirement early. Ask clients from our first meeting what they would do if they didn't have to work anymore." He also suggests "trying out the activities they plan on doing at retirement" before fully committing to them. Acknowledge and address emotional adjustments. If the transition proves challenging, seek resources or support to navigate the emotional aspects, such as adjusting to new routines or finding purpose outside of work. Etter reminds retirees that understanding your financial tools and when to use them can help manage stress. Glenn Downing, a certified financial planner with CameronDowning, poses a crucial question to new retirees: "What are you going to do with yourself all day?" He notes that the response "tells me volumes. If I get a blank look back, I know that the retiree has only thought about the negative (i.e., not having to go to work) and not the positive (i.e., the opportunity to completely reinvest oneself)." "Ultimately, a successful retirement blends financial stability with purpose and proactive health and lifestyle planning," says Sebesta. Resources that can help would-be retirees become emotionally ready include the blog "The Retirement Manifesto" and the book "The Keys to A Successful Retirement" by Fritz Gilbert. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
