Alt Investments when Bonds Suck

[Dbeasy 15261]

Don’t know if there will be interest in this topic but thought I’d post to see.

Today’s super low bond environment has screwed up the traditional asset allocation model, particularly for those in their 50’s and older. 

As a result I’ve been looking more at alternative investments. Be interested to hear folks thoughts about opportunity areas. One area I looked at was investing in a bar that was struggling with covid but am concerned about the potential liabilities associated with bars. 

Other areas I’ve looked at expanding investment includes VC, PE, real estate deals, and entrepreneurial ventures. 

[DonkeyCigars 143]

Just now, Dbeasy said:

Don’t know if there will be interest in this topic but thought I’d post to see.

Today’s super low bond environment has screwed up the traditional asset allocation model, particularly for those in their 50’s and older. 

As a result I’ve been looking more at alternative investments. Be interested to hear folks thoughts about opportunity areas. One area I looked at was investing in a bar that was struggling with covid but am concerned about the potential liabilities associated with bars. 

Other areas I’ve looked at expanding investment includes VC, PE, real estate deals, and entrepreneurial ventures. 

I'm thinking hard about doing some passive, apartment and/or mobile home syndication investment. Total return in the apartment syndication industry I think is benchmarked at 12-15% annually, but with mobile homes it can be up to 30% which is pretty insane for being silent partner and not having to do any of the work or go out to Kansas/Iowa/Nebraska.

[TwiceHorn 31705]

As I have mentioned repeatedly, I got to watch my parents' portfolio for about 20 years and they were, by accident and intention, more equity heavy than the "traditional asset allocation model."  My Mom loved CDs because the "principal never went down."  She wasn't that simple, but found that comforting.  As those rates became unacceptable, that money went into bond mutual funds, SmartNotes, and basically idle cash.

They got gored in all the crises since the 80s, hung in, and recovered.  Their portfolio was relatively large compared to their conservative lifestyle.  And they had good health and health insurance/medicare supplement.  So failing to shift to a low-risk, fixed-income, interest rate model is not a complete disaster, provided the prior two sentences hold true.  The health care thing is the monster wild card there.

One of the things with the two previous suggestions is that they are pretty high risk compared to the old-school options.

And that prompts the question, is the goal with the "traditional asset allocation" more to lower risk and loss of principal, or achieve a livable fixed income?

Edited February 1, 2021 by TwiceHorn

[bluto 4947]

Friend of mine is into yieldstreet and likes it. Texas regulations make it kinda tough tho.

[Fudge Nuggets 19292]

Investing in a bar whether under pandemic conditions or not would be about the worst idea possible.

[DonkeyCigars 143]

1 hour ago, Fudge Nuggets said:

Investing in a bar whether under pandemic conditions or not would be about the worst idea possible.

Open a Bar they said, it would be fun they said...out front shoulda told ya!

[52-80 19287]

Just hoard up on firearms every 4 years, a few months before the election.

[Dbeasy 15261]

5 hours ago, TwiceHorn said:

As I have mentioned repeatedly, I got to watch my parents' portfolio for about 20 years and they were, by accident and intention, more equity heavy than the "traditional asset allocation model."  My Mom loved CDs because the "principal never went down."  She wasn't that simple, but found that comforting.  As those rates became unacceptable, that money went into bond mutual funds, SmartNotes, and basically idle cash.

They got gored in all the crises since the 80s, hung in, and recovered.  Their portfolio was relatively large compared to their conservative lifestyle.  And they had good health and health insurance/medicare supplement.  So failing to shift to a low-risk, fixed-income, interest rate model is not a complete disaster, provided the prior two sentences hold true.  The health care thing is the monster wild card there.

One of the things with the two previous suggestions is that they are pretty high risk compared to the old-school options.

And that prompts the question, is the goal with the "traditional asset allocation" more to lower risk and loss of principal, or achieve a livable fixed income?

Both. For many, there is no pension. That means the portfolio has to cover a significant percentage of the annual expenses whenever one stops working, because social security won't be enough and is delayed to age 65-67 anyway.

The portfolio can cover expenses via draw-down of principal, earnings on top of the principal or both. If you put it all in stocks, you are staring at massive potential principal losses in a market crash that could extend for 10 years to recover. I know many on this board can't fathom that long of a recovery period, but it is very possible given how far our government has gone in trying to manuever out of market declines over the last 13 years. We've spent the interest rate bullet, quantitative easing bullet and deficit bullet.  Now we are onto uncharted territory with MMT theory.

So with that as background, a mix of stock with other investments that can yield ~ 4-8% post tax is pretty important for most people. With the stock market at a Buffet/Shill all time high, the math gets tough. Don't want to put 100% of assets in stocks, but still need that return range.  That's why I'm looking more at alternative. Bonds used to provide that nice ~4% return to balance the higher stock returns. Not anymore unless you reach out onto the high yield range of the curve, and that's going to get hit hard on the next downturn.

[Dbeasy 15261]

5 hours ago, Fudge Nuggets said:

Investing in a bar whether under pandemic conditions or not would be about the worst idea possible.

agree, I wasn't serious about it but was just using that as one example of an alternative asset to stimulate the discussion. 

[GRHorn 105]

6 hours ago, Fudge Nuggets said:

Investing in a bar whether under pandemic conditions or not would be about the worst idea possible.

Yeah, don’t do that. 

 

[Fudge Nuggets 19292]

1 hour ago, Dbeasy said:

Both. For many, there is no pension. That means the portfolio has to cover a significant percentage of the annual expenses whenever one stops working, because social security won't be enough and is delayed to age 65-67 anyway.

The portfolio can cover expenses via draw-down of principal, earnings on top of the principal or both. If you put it all in stocks, you are staring at massive potential principal losses in a market crash that could extend for 10 years to recover. I know many on this board can't fathom that long of a recovery period, but it is very possible given how far our government has gone in trying to manuever out of market declines over the last 13 years. We've spent the interest rate bullet, quantitative easing bullet and deficit bullet.  Now we are onto uncharted territory with MMT theory.

So with that as background, a mix of stock with other investments that can yield ~ 4-8% post tax is pretty important for most people. With the stock market at a Buffet/Shill all time high, the math gets tough. Don't want to put 100% of assets in stocks, but still need that return range.  That's why I'm looking more at alternative. Bonds used to provide that nice ~4% return to balance the higher stock returns. Not anymore unless you reach out onto the high yield range of the curve, and that's going to get hit hard on the next downturn.

Two words... "online poker".

[GRHorn 105]

I’d be willing to sell you my shares in an Austin based food startup. 🤕

[Continental Op 3934]

4 hours ago, Fudge Nuggets said:

Two words... "online poker".

Oh man, if UIGEA ever gets put out to pasture online poker will be so marshmallow soft for quite awhile that anyone who has any clue what they're doing will be able to make money. 

[bernorange 8377]

It's all ball bearings these days.

[40acredropout 2908]

13 hours ago, DonkeyCigars said:

I'm thinking hard about doing some passive, apartment and/or mobile home syndication investment. Total return in the apartment syndication industry I think is benchmarked at 12-15% annually, but with mobile homes it can be up to 30% which is pretty insane for being silent partner and not having to do any of the work or go out to Kansas/Iowa/Nebraska.

You might be surprised how competitive the mobile home space has gotten.  Certainly more meat left on the bone out there than conventional MF but the sector has tightened up quite a bit in the last 5-10 years.  I'd make sure you're investing with an operator with experience in the space... it seems simple enough (and it's not rocket science) but there really is a lot of shit that comes up operating a park than you can't imagine going in.   

Sidenote-  Contrary to what my username may suggest, my experience isn't actually from living in one.