How Passive Investments Can Boost Your Retirement Savings

Published on January 5, 2023

In December, Next Generation announced a new webinar about investing passively in alternative assets, such as certain real estate classes, for example. It featured Scott Ritchie, business development specialist at Next Generation and Ted Greene, investor relations manager of Spartan Investment Group.

They discussed the current market and what might lie ahead for investors in the coming year as the Fed attempts to slow down the economy. The conversation turned to how passive investing can be a lucrative approach to building a retirement portfolio that meets investors’ personal goals. Of course, Scott talked about how that works with self-directed IRAs.

As we shared in a prior post, passive investing is a strategy wherein the individual makes investments in certain alternative assets that, after the upfront work and research are done, require no management on the investor’s part. It’s about being more hands-off (that’s the passive part), as the asset returns continued value to the investor.

Why passive investments?
The passive investment market is one way—with many asset options—to diversify one’s retirement portfolio and steer away from traditional stock market investments. It also provides investors with fresh ways to look at how they are investing. The question raised in the webinar was: Do you invest to make as much in gains as you can, and “go big” without regard to your risk profile and proximity to retirement age, or invest in line with your financial goals, with assets that will get you there?

With passive investments in real estate and other alternative assets—which can be included in a self-directed IRA—investors can, in Ted’s words, “orchestrate their portfolio and invest to get what they need . . . to architect a portfolio that provides cash flow to meet certain budgetary needs.”

Scott and Ted discussed the importance of taking on this posture the closer we are to retirement, with a strategy that creates income from a basket of private investments that work together to deliver the cash flow you need. The passive investment market is a tool to use to attain this goal.

As Ted explained, certain real estate classes—such as self-storage and multifamily housing, or investing via real estate syndication—can provide incremental net operating income that may yield that cash flow.  Further, the beauty of that cash flow is that it can protect the asset’s value even in the face of rising interest rates (as we are experiencing in the market right now), and therefore can protect the investor as well.

Assessing the private investment market for your self-directed retirement portfolio

Determining one’s individual picture of “success,” identifying the risks and characteristics of certain private investments, and evaluating how those investments perform in risk-on and risk-off periods can be some of the factors in considering a private investment strategy for one’s retirement plan.

Ted suggested that investors think about creating a road map based on their definition of success to determine where, how, and when to move assets based on the account owner’s risk profile. Factors in that road map could look like this:

• Identifying where you want to be financially in five years.
• When will I have enough financial independence to take more control of my time (and retire)?
• What must happen between now and then to meet my goals?

The strategy would be to consider investments that can yield small increments of income spread out over various asset classes, with different risk profiles and maturity schedules. This can build a highly diverse portfolio and enable account owners to map out their current holdings based on various asset classes. This map can help spotlight how the different assets are performing and inform where to make investment adjustments to meet one’s financial goals.

We invite you to listen to the webinar and learn more about how a passive investment strategy can align with your self-directed retirement plan. As always, if you have questions about self-direction as a retirement wealth-building strategy, or want insights into the many options and benefits of a self-directed IRA, you can schedule a complimentary educational session with a Next Generation representative. You can also contact us by email at NewAccounts@NextGenerationTrust.com or call us directly at 888.857.8058.