Top 5 Safest Retirement Investments Outside the Stock Market
Retirees often seek low-risk income investments based on hard assets like real estate. Learn more about how Capstone can help.
People tend to think of retirement as a time when they can finally take it easy after a lifetime of 9-to-5 drudgery. You worked hard for decades, and now it’s time to relax, smell the proverbial roses, and enjoy life. Rather than relying on retirement plans, pensions, or Social Security, many retirees are looking for investments that can provide additional income.
The general rule in investing is that you need to take big risks to get big returns. Retirees can’t afford to risk everything, though, so they need investments that can yield good returns without betting the farm. Identifying the safest investments for retirement is a subjective question since everyone has their own ideas about how much risk is too much. This article lists what we consider the best income investments for a safe retirement.
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Why might a retiree prefer to invest outside the stock market?
The stock market can generate massive amounts of income for people who know how to play the game. That often means entrusting your money to financial professionals who understand how the stock market works and can make decisions based on their education and experience. Without that kind of expertise, the stock market is volatile and risky. You could win big, but you’re more likely to lose everything.
People who make big returns from investing their own money on Wall Street tend to have three things:
A background in finance;
Ample time to research individual stocks, market trends, and other economic indicators; and
The financial ability to endure a loss.
Retirees often have a great deal of time on their hands. What many retirees do not have, though, is the ability to bounce back from a big loss. Most retirees in the U.S. need to keep their nest eggs relatively safe from the stock market’s lows.
For these reasons, a retiree might prefer to invest at least some of their money outside the stock market. They worry — justifiably — about the volatility and uncertainty of stocks. Even relatively safer options like fixed-income funds can be subject to the stock market’s whims.
Retirees often look to alternative retirement investments that involve less risk and more predictable returns. They might prefer to invest in “real” assets they can see and touch. Real estate, for example, is a hard asset unlike stocks, which are inherently ephemeral. Retirees may also prefer to keep their hard-earned money closer to home, so they look for investment opportunities near where they live.
5. Fixed annuities
A fixed annuity is a contract between a purchaser and an insurance company. The purchaser makes an upfront payment. The insurance company then makes periodic payments to the purchaser over a fixed period, such as 20 years or the remainder of the purchaser’s life. The purchaser may designate a beneficiary to receive any remaining payments after their death.
One of the main advantages of a fixed annuity is its guarantee of income at a specified amount. The contract locks an interest rate in, so the payment remains the same even if interest rates go down or the market declines.
While annuities offer many benefits, they tend to be rather illiquid. Annuity contracts typically impose a penalty for cashing out early. The fixed payment also does not protect the purchaser against inflation.
4. Series I savings bonds
Savings bonds can be a good investment, provided you know what you are getting yourself into. The federal government guarantees the bonds, which makes them among the most secure investments possible.
When you purchase a bond, it begins earning interest. Series I savings bonds have interest rates that adjust based on inflation. Interest payments go up as inflation rises, but they can also go down alongside inflation.
Liquidity is an issue with savings bonds. You cannot cash a savings bond in for at least one year, and you sacrifice some interest income if you do so before five years.
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3. Money market funds
A money market fund (MMF) is a pool of low-risk investments, including certificates of deposit (CDs), short-term bonds, and Treasury bills. They tend to offer relatively high returns and a high degree of liquidity. Withdrawals are usually possible at any time with no penalty. Strict credit qualifications make MMFs a secure investment.
2. Fractional Loan Program
Fractional ownership of real estate debt doesn't qualify as an "investment" in the traditional sense since it doesn't produce returns in the same manner as funds or stocks. With that said, it remains a dependable, hard-asset-based option for generating steady income through real estate of your choosing – without the hassle of attracting or vetting your own borrowers.
Capstone’s Fractional Loan Program gives retirees and others the opportunity to become lenders in real estate deals. The real property serves as a hard asset securing the loan. This helps keep lenders’ money safe.
Lenders who participate in the program can contribute to pools that fund real estate loans. They can search for opportunities based on factors like location and type of property. They own a fractional share of the debt in the first lien position.They receive a portion of the revenue as the borrower makes interest payments.
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1. Capstone Growth Fund
The Capstone Growth Fund is a private real estate debt fund. It is similar to the Fractional Loan Program in that retirees and others may:
Contribute to a pool of money that funds loans
Earn returns through diverse asset-based loans in Texas
Receive shares of the revenue as borrowers pay interest
However, Capstone handles more of the decision-making for participants in the Growth Fund. Retirees benefit from dependable track record in the hard money lending space. The fund is a diversified pool of properties and loans. These factors make the Growth Fund a more “hands off” investment option compared to the Fractional Loan Program, in which participants pick out individual properties themselves.
Retirees partner with Capstone for steady capital preservation
Real estate debt investments offer retirees (and others!) the opportunity to earn passive returns they can truly wrap their heads around. We don’t pretend to have a “secret formula” or be on the “cutting edge”. These are time-tested ways to preserve capital. Capstone Capital Partners’ Growth Fund and Fractional Loan Program offer ways to participate in reliable asset-based loans right here in Texas.
To learn more about our investment opportunities, please contact the Capstone team today through our online contact form.
