The five- to 10-year time period just before and just after you retire is called the retirement risk zone

The five- to 10-year time period just before and just after you retire is called the retirement risk zone. Any significant declines during that period can have a major impact on the future sustainability of your retirement income.

Everybody talks diversification to lower portfolio risk by spreading investments over multiple, unrelated assets to reduce the likelihood of a sudden fatal outcome. Unfortunately, diversification into only traditional stock and bond investments is failing because of “like-correlation”.

The global markets have become increasingly more correlated and more volatile. Let’s face it – traditional diversification just doesn’t accomplish its goals. In an upward market, diversification lowers returns just when you want less of it and, in a down

This chart illustrates the consistent growth in one exempt market segment

market, when you want to have it work the most, we find the markets become increasingly more correlated resulting in greater losses.

Over the years, highly respected pension managers have increased allocations to alternative asset classes. They have little or no correlation to the fluctuating publicly traded markets but are also less liquid, and that is the tradeoff. Allocating to alternative investments increases portfolio diversification, risk control and adds superior risk/return potential to the portfolio. While alternative investments such as private equity have been available to institutional investors and sophisticated investors for many years, the availability to retail investors in the broader scope has only happened in recent years through exempt market dealers (EMDs).

EMDs offer a variety of equity and bond investments. Just as with publicly traded securities, risks can vary substantially. EMDs provide due diligence on their offerings as it pertains to risk, management history, investor alignment, track record, timeframe, fees and performance potential. Investors can compromise some risk in lieu of lower costs over public securities. It is not uncommon to find offerings yielding 8% or higher without subjection to the fluctuating markets. For more information, call Marvin Nickel.