Whenever it's in the client's best interest. Many of my clients are averse to "Traditionals" (i.e., "Wall Street" investments), but very favorably inclined towards "Alternatives/"Main Street" investments (real estate, private equity, Cash Value Life Insurance, etc). Additionally, Non-Traditional/Alternative assets tend to have certain tax-efficiencies, such as Bonus Depreciation, that are not available with Traditional assets; as well as sometimes much higher yields/income. That said, too much allocation to Non-Traditional assets can be problematic as well. In an ideal scenario, all else equal, a combination of Traditional and Non-Traditional assets to increase total portfolio diversification (i.e., lower correlation) and better help the client achieve their goals is optimal; and very importantly, in a very individually-tailored way that helps them sleep well at night and stick with the long-term plan.
As a consultant who's worked with numerous startups and financial institutions, I've seen my fair share of non-traditional investment strategies. At spectup, we often advise founders on innovative ways to secure funding, which sometimes involves thinking outside the box. When it comes to retirement investments, I'd say it really depends on the client's risk tolerance and overall financial situation. I remember working with a fintech startup that was developing a new retirement planning app. They were exploring ways to incorporate alternative investments into their platform, which got me thinking about this very question. Generally, I'd consider recommending non-traditional retirement investments for clients who already have a solid foundation of traditional investments and are looking to diversify. These could be high-net-worth individuals or those with a longer time horizon before retirement. It's crucial to ensure that the client fully understands the risks involved. I once had a conversation with a founder who was considering using cryptocurrency as part of his retirement strategy. We had a long chat about volatility and the importance of not putting all your eggs in one basket. Non-traditional investments might include real estate investment trusts (REITs), peer-to-peer lending, or even certain types of hedge funds. But it's vital to approach these with caution and as part of a well-rounded portfolio. At spectup, we always stress the importance of due diligence, whether it's for startup investments or personal finance decisions. Ultimately, any recommendation should align with the client's long-term goals and risk tolerance.
There are three situations where non-traditional investments make sense for retirement. Non-traditional retirement assets are usually defined by risk, whether that risk is business failure, lack of liquidity, or some other aspect that limits the ability to exit an investment with certainty due to a lack of a ready market for the investment. The first is when a person doesn't need the retirement asset for retirement, this is when the usual risk assessments can be relaxed or even disregarded to allow for personal interest or high risk and payout investments. A great situation for non-traditional retirement assets is a young client. Youth provides time which can compensate for outsized risk, and allows multiple exit points for an investment. Too often people enter great investment ideas, but with time horizons that don't match up with the potential delay in exiting the investment. The best situation for investing in non-traditi9onal retirement investments is what I call the soft retirement. This is an individual who wants to pursue a hobby as a business in retirement. This is technically an investment because the goal is to operate a profitable business. However it has the added benefits of allowing participation in an enjoyable activity which keeps the mind and body active - with all of the health benefits that accompany an active retirement.