In this episode of the Secure Your Retirement Podcast, Radon and Murs discuss how alternative investments can play a valuable role in portfolio management and retirement investing. They’re joined by Brooke Garcia, a Certified Financial Planner™, Chartered Financial Analyst®, and Chartered Alternative Investment Analyst®, who brings deep expertise in private markets investing, risk management for investors, and portfolio diversification strategies. 

They explore how adding non-correlated assets such as private equity or private credit investing can help improve portfolio balance and reduce portfolio risk—especially when the traditional 60/40 portfolio approach no longer provides the same stability. This insightful discussion dives into how alternative investments can create a more tax efficient portfolio and contribute to a smoother investment experience during volatile market cycles. 

Listen in to learn about how alternative investments explained by Brooke can reshape the way you think about diversification and retirement planning strategies. You’ll discover how these vehicles can provide access to opportunities outside of the public markets, deliver potential capital gains strategy benefits, and offer unique tools for investment risk management. If you’re exploring ways to plan for retirement, retiring comfortably, and secure your retirement, this episode is packed with insights that connect tax planning, index replication, and tax loss harvesting into a broader tax strategy that enhances long-term wealth management. 

In this episode, find out: 

• What alternative investments are and how they differ from traditional stocks and bonds. 
• Why private markets investing may provide higher returns and smoother volatility. 
• How to use non-correlated assets to build a more diversified portfolio and improve portfolio balance. 
• Key considerations about liquidity, manager due diligence, and position sizing in alternative investments. 
• How a well-designed diversification strategy supports long-term retirement planning and tax efficiency. 

Tweetable Quotes: 

“When bonds and stocks fall together, that’s when investors start to realize the importance of alternative investments in balancing risk.” 

— Radon Stancil 

“Alternative investments aren’t perfect for everyone, but everyone should evaluate whether they can play a role in their plan for retirement.” 

— Murs Tariq 

Resources: 

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement! 

To access the course, simply visit POMWealth.net/podcast. 

Here is the full transcript:

Welcome everyone to Secure Your Retirement Podcast. We are super excited. We’ve got a

very special guest today.

why we invited you to come talk with our clients and listeners of this podcast.

So, in the world of investing, when people have over the years,

you know, decided that they want to take some of the risk back in their portfolio,

really what most people thought of is that let’s just go do a 60 -40 portfolio. And

people kind of know what that means. It’s going to be 60 % stocks, 40 % bonds. and

that’s supposed to reduce my risk. I say supposed to, because it didn’t happen a

couple years ago. Bonds plummeted and everybody lost money in that area. But it did

make people kind of start looking at alternatives, alternative type of investments.

And that’s what we want to talk to you about today is this idea of alternative

investments. And we’re going to kind of dive in there a little bit. But I guess,

first of all, could you’d kind of just help us to understand for those that are

listening, what is an alternative investment? What is a private investment? And we’ll

kind of go down the differences, but can we just, let’s start off with what that

even is. Yeah, for sure. So, I’ll start back and give a little bit of context. You

sort of alluded to 2022 when, yes, nothing worked. Like there was no place to hide.

For many years before that, the world of private markets had been evolving and

growing because of institutional money. So, endowments and foundations and pensions were

looking for a place to find good investments. And bonds were doing nothing.

They were at zero because the Fed kept interest rates so low for so long. And so

to sort of supplement some of that return stream that the institutions weren’t

getting, they were going out to the private markets. So traditionally, rather than

having like a bank go out and make a loan. Banks pulled back after the great

financial crisis. And so, you started to see all of these other asset managers go

out and start making the loans that the banks weren’t making. So, they’re going out

to a company and they’re saying, you’re not going to get it from a bank, you’re

going to get it from us. We’re going to have custom terms to this. It’s still

debt, just like it would be on the public bond side, but it’s not publicly traded.

It’s a direct investment between an asset manager and the company that needs the

funding. Private equity is also like lots and lots of companies or rather than going

public, they’re either starting private and staying private for a long time or you

see leveraged buyouts where public companies, private asset managers go out and they

buy these companies and they take them private. So that’s kind of when you,

there’s a lot of other ways that you can sort of have private market investments

but basically, it’s something that’s not traded on an exchange so you can’t go out

and buy or sell the stock it’s something that traditionally has been something that

you have to hold for a very long time until you find somebody else to buy it from

you or in private equity for example the private equity firm takes the company

public yeah so and i think i read this stat and my number is wrong here so

whoever’s going to fact check me that’s listening just realize i know i’m wrong but

i I don’t know.

of the world’s best companies are in the stock market,

right? That means 80 -Ish percent are outside and that’s private space. And I know a

big one that comes in mind, and everyone has, you know, been exposed to it is open

AI, chat GPT, right? That’s a private company, but I think most people say that’s

probably one of the fastest growing and one of the most important companies in the

world right now. And so, I want access to that. You got some of the best growers

that are in a place where you just don’t have access unless you go down this

private route. So, I think one thing,

help us understand a little bit more around, well, why would anyone start to

consider private investments into their portfolio rather than just doing the

traditional stock bond mix and then we’ll get into a little bit more of like well

what do we need to think about here how do we properly structure this uh and

what’s the right you know percentages of allocations toward this this really cool

investment side with that’s shown tremendous growth but also there’s always going to

be issues there’s no perfect investment so let’s start there brook help us understand

you know why someone would ever consider bringing this into their portfolio yeah so

So, and I think just on your, on the point that you made,

there are a lot of, especially like sexy names, right, that are not publicly traded.

And so it makes a good story. So, I mean, be aware of that for sure. But I would

say, one, there are a couple of different reasons why somebody might consider private

markets as part of their overall portfolio. One is that they sometimes have the

potential for higher returns than you can get in the public markets. Traditionally,

that has been true. There’s this thing called a liquidity premium where basically you

expect to get compensated more for locking your money up. And as I mentioned, you

can’t buy and sell those shares easily, so you have to just hold them. And so for

being willing to hold that and lock up some of your money, theoretically, you should

be compensated more for that. So, one thing is that potential higher return. Another

thing, and people will debate about whether this is good or not. But from an

investor experience perspective,

in public markets, you can go out, and you can look at the stock price any day.

Like multiple times during the day, you can see how the value of your stock is

changing. You feel every bit of that if you’re watching your portfolio lot of a lot

of retirees and pre -retirees do. You can’t do that in private markets.

So, you can call it volatility smoothing. You can call it a number of different

things. But because you’re not seeing the value of those companies that you hold or

the debt that you hold change on a daily basis or even a monthly basis in some

cases, it feels like a smoother ride. You don’t feel the volatility that you do

feel in the private markets. And for individual retail investors, like, that can be,

that can help you feel more confident when the, when the markets are,

when the public markets specifically are very volatile. Now, the caveat to that is

that just because you’re not seeing the value change doesn’t mean it’s not changing.

Ultimately, those companies are, the value of it is what they can go out and they

can sell something for. But it does help with sort of that investor experience,

feeling a smoother ride, and that kind of helps tamp down the unease that can come

with volatility in a normal portfolio. Yeah, I know there’s an analogy that I’ve

used in the past that’s really helped people kind of understand this, this

illiquidity aspect of private investment. So, take your own house, right, your own

house that you live in. And if you said, I want to go sell this house today,

well, you could try to do that, but you would get it ready for sale.

Well, it kind of puts you in this mode of I’m not paying as much attention, which

can be a blessing sometimes, as well as it kind of provides this ability for

smoothing, I guess, or well, can we talk a little bit about what’s the word that

we use, correlation, right? That’s a big term. So, explain correlation and then how

private investments and alternatives could help decorrelate or de -risk the portfolio a

little bit in terms of volatility, but as well as just different types of

investments. Yeah. So, correlation just simply put is how two or more asset classes

move in conjunction with each other. So, if my stock goes up, does my bond go up

the same? Does my bond go up less? Does my bond go down? And so generally when

you’re trying to create a stable portfolio, you want to combine a series of

uncorrelated assets together to provide some stability. And so that when like 2022 is

a horrible example, but theoretically your stocks and your bonds are not super

correlated with each other. So, when the stock market is maybe struggling a little

bit, your bond portfolio is holding up and is providing some of that stability. I

think when you talk about like terminology wise, you need to be kind of careful

because alternatives can be a lot broader than what we think of in private markets.

So private markets, you’re thinking private credit, you’re thinking private equity,

maybe infrastructure, maybe farmland, things like that, or some of the more fun like

sports teams or things like that. Um,

alternatives, though, when you think about what you’re really looking for as a

diversifier. So gold is a common kind of thing used asset class used as a

diversifier, right? Private markets can also provide some diversification.

Now, there’s still going to be some correlation. So, we look at it on a scale of

zero to one. One is perfectly correlated. Every they move in lockstep. Zero is not

at all. You can have negative correlation, right? there is still going to be some

correlation between private markets, investments, and public markets. But especially

because of that sort of delayed marking of the assets underneath and some of the

delayed reporting, you’re definitely going to see that correlation be,

it’s going to provide some correlation, some like diversification benefits essentially.

So that can definitely contribute toward having just another piece of your portfolio

that isn’t, it isn’t in locks up with your stocks. It isn’t in locks up with your

bonds. Yeah. So, let’s talk a little bit about maybe some things that people need

to know when it comes to these investments.

Merce just kind of walked through a little bit of it. And that is that if I want

to sell Apple, I can let a click of a button, sell my Apple. When I buy into a

private investment, there are things I need to know when it comes to liquidity. So

could you kind of walk us through and give us the landscape of what I need to

know about when it comes to liquidity in a private investment? Yeah. So, it

completely depends on the vehicle that you’re using, right? So, I mentioned these

endowments and foundations, these institutional investors that have been investing in

private markets for a long time. The process that they go through to get invested

is a lot of paperwork. It’s complicated paperwork. And then they basically hand over

their money and they say, here’s the amount of money that I promised I was going

to give you. And I’m not going to see any of it back for 10 plus years, maybe

more. That’s a traditional like drawdown type of vehicle. Those still exist today.

And if you have the right kind of net worth, you could access those if you wanted

to. There’s been a lot of innovation over the last several years, several years and

proliferation of different types of vehicles that can make it a little bit easier to

access those. So, interval funds, tender offer funds, those are very common, becoming

more common

today. In those, you have some limited liquidity. So, you’re not necessarily, and I’ll

be talking generally about evergreen vehicles, which means that it’s not a one

specific fund that sits for 10 years you get your money back that fund closes they

open up fund too right I’m going to be talking about an evergreen structure were

it’s the same fund that just always continues but you go in you go through a

subscription process there can still be paperwork there’s some technology providers

available um to kind of help smooth that process but when you go into say an

interval fund for example most of them will say okay you can subscribe to this

monthly for example you can give us your money monthly you’re only going to be able

to get your money out on a quarterly basis and it’s limited so we’re going to

limit what you can get back to say 5 % of the fund if a bunch of people all

want their money back all in the same quarter they’re going to say we are capping

it at 5 % so you wanted 100 ,000 back, we’re going to pro rata that 5 % across

everyone. So, you wanted 100 ,000. You’re only going to get 50, for example. So

that’s definitely a consideration. You need to know that when you put your money

into this, you can get it back. But one, it’s designed to be a long -term

investment. It’s not designed to be something that you’re going to pull from on a

regular basis. Think long -term capital appreciation, that diversification benefit.

This is something that you’re going to lock in for a little while, but you can get

it back. It just depends on the structure of the vehicle that you’re investing in.

That’s most common. Tender offer funds are similar, but they are not required to

provide liquidity, like on a quarterly basis. It’s sort of subject to board approval,

so that’s another thing to consider. So, the liquidity, what you’re sort of giving up

for the ability to be able to redeem on a quarterly basis, assuming that’s the fund

terms.

erosion of that because you’re giving up a little bit of that juice for the ability

to have some liquidity when you need it on and like interquarter basis. Yeah. I just

think that, you know, so in my mind, this is the way I think Merce and I think

about this when we’re designing a portfolio. If we’re going to put alternative

investments in the portfolio, because of that liquidity side of things,

we’re not going to go put 60 % of the portfolio on alternative investments, right?

Position sizing is absolutely so important when you’re making a decision about these.

So, we’ve kind of put it at a cap right now of 20%. So, we say, hey, if I got a

person who’s going to put, they got a whatever size account they’ve got, we don’t

want to put more than 20 % in that type of investment. That means they’ve got a

ton of liquidity. And so, this idea of this liquidity is not a big deal. And I

want to go back and just reiterate what Merce said. I mean, if I buy a house, I

give up some liquidity on that money, but I can get it back. I just, I’m going to

have to go through a process. And I don’t want to sell my house rapidly like that.

So, so what are some cautions that people maybe need to think about when it comes

to this type of investment? Like, okay, somebody goes right now, they’re listening

to this and I go, oh, man, this sounds cool. So, they start Googling or check GPT

and alternative investments, private investment.

that would advocate for like a 50 % allocation to private markets. That’s insane.

And I would tell them the person that I’m thinking of, I would tell them that to

his face. But yes, I think position sizing in 20 % is probably a good bogey,

maybe a little bit less. I mean, you know, it’s all dependent on the individual

situation of the client, how comfortable they really will be with actually locking

that up. But I would say outside of position sizing,

who your management team is super important. So, in private markets, way more so

than in the public markets, there is a huge dispersion of returns between the best

performing managers and the worst performing managers. Like, it’s a very wide, wide

dispersion. And so going with someone

who has gone through a deep due diligence process. Professionals have evaluated it.

And I think that this is going to become increasingly more important because there

has been so much money that has flooded into the private market space over the last

couple of years. Every other day, an asset manager is coming out with a new product

that’s private markets focused. All of that money has to find somewhere to go. And

they have to find good investments. And if they have, they’re, they’re attracting

cash, but they, there are not great investments out there to pick from. They have

to pick from less ideal options, right? Which will erode the return over time. And

so, I think that finding a really solid manager with a really solid track record

when we, because my team does evaluations of private market managers all the time.

And we have an extensive due diligence process that we go through. The management

team is oftentimes like the most important thing about a potential investment.

Do they have a track record working together? Do they have a demonstrated record of

success? Do they have the resources necessary? Do they have the name and the size

necessary to be able to go out and get good deals? So those are important. And I

would say that for the for the listeners here, the way that they figure that out.

be able to do all that vetting either so that’s why you know we want your team as

a part of our team and so that’s why we’ve partnered with you guys because

we know that you’ve got a good team of people that that’s what they do that’s what

you guys do go look at these things so that when we do make an offer or bring up

an offering to our clients we can say no this has been vetted from the top to the

bottom we’ve It’s been looked at and analyzed so we know that what we’re putting in

front of you is a good investment. So, we do appreciate that. Anything, Murs? No,

I would just say, you know, I think there’s good reason to understand this topic as

I kind of talk to listeners here. It sounds sexy, right? Getting involved with some

of the fastest growing companies in the world, the potential for better return,

de -risking or decorrelating a little bit or having this differentiator in your

portfolio can be nice. I mean, this is what the ultra, ultra -high net worth has

done for the longest time. This is what Harvard’s and those endowments and all this

stuff they’re doing. And so, there’s a track record for success here. But it’s very

important also to understand, you know, the limitations and the cons of of any

investment.

And I think that that’s why it’s an advantage to have you all on their team. Like,

because you can help make a decision about, okay, it doesn’t make sense, first of

all, in this portfolio. Two, how do we size it? Three, what do we pick? Because

there’s a lot of options out there. Do you go out and you pick a private credit

fund? Do you go out and you pick a multi -asset solution that can kind of go

anywhere and is really flexible? And they have, like, they have the advantage of

working with you all to help figure that out. Right. So, to close this out, what I

would say, and we say this all the time to our clients, which is Roth conversions,

right? That’s the big hot topic right now. Everyone’s worried about taxes and

everything like that. What we say is, you know, should everyone do a Roth

conversion? The answer is no, right? But should everyone look at that year by year?

Absolutely. You should always be evaluating that potential opportunity. So same thing

here, right? Should you have private investments in your portfolio?

The answer is no, but should you be looking at it, right? It’s not a, it’s not a

definite that I need this in my portfolio for success. But is it something that

could fit into my plan? Well, I need to evaluate that. And so, if your, you know,

if your advisor that you’re potentially working with already doesn’t talk to you

about this and they’re not talking about it, maybe they don’t understand it, right?

It’s a very complex space. And if you want to learn more about this, we’re always

happy to have that conversation with you. A simple way to do that is go to our

website, POMWealth.net. And from there, you’ll be able to schedule a phone call

with one of our advisors. And we’re happy to kind of educate as best as we can on

this and see if it could be a good fit for you. Thank you very much, Brooke. We appreciate you coming on. Thank you.