Retirees have been following the same asset-allocation strategy for decades: an equity-heavy portfolio that shifts more towards bonds for fixed-income during retirement. However, in the current market environment, it may be time to give the traditional retirement planning playbook a second look. Wealth Professional recently turned to Sightline Wealth Management Senior Vice President and Investment Advisor Paul de Sousa for insight on the dangers of the traditional fixed-income fixation and what investors planning for retirement should focus on instead.
“I think fixating on income, especially when interest rates are at generational lows, is quite dangerous,” de Sousa tells the publication. “Make no mistake, these low rates represent a large tax on investors, and it’s a war against savers.”
Instead, de Sousa recommends moving away from income investing and towards various other asset classes, including equities with a low down-market capture ratio. “With an alternative investment that has consistent distributions and/or capital gains and low down-market capture ratios, an advisor also has the option to withdraw part of the capital gains quarterly or semi-annually to produce cash flow,” he explains.
According to de Sousa, other asset classes investors approaching retirement should consider incorporating into their portfolios include mortgages, dividend-paying stocks and private debt. However, regardless of the specific type of asset, he encourages advisors and investors to utilize diligence, oversight and monitoring before investing.
“As a whole, it’s a wonderful asset class, but not all investments are made equal,” says de Sousa. “I advise everyone to not just stop once they see the label of private debt, but really roll up their sleeves and look under the hood. For the managers we use, there has been extensive due diligence – learning about their process, their operations, and the typical loan of their loan book – and double-checking what we’ve been told before placing any money with them.”
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