Retirement Planning: Incorporating Non-Traditional Assets

Retirement Planning

Retirement investment portfolios often contain traditional assets like stocks and bonds. However, stocks and bonds put you at the mercy of financial markets. If markets fall, your portfolio could lose value. It’s possible to balance this risk, but you can diversify even further by adding non-traditional assets to your portfolio.

Non-traditional assets, or alternative investments, include physical investments like real estate and collectibles. You can also invest in private companies. Physical commodities also fall into the alternative investment category, as do intellectual property rights or licenses for inventions or creative works. 

Here’s a closer look at alternative investments and how they help with diversification and bring other financial benefits during retirement planning. 

Why It’s Important To Diversify in Retirement Portfolios

Diversification involves putting investment funds into different assets. You can diversify within each asset class. For example, you can create a balanced securities portfolio with stocks and exchange-traded funds (ETFs) from different industries. 

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Your portfolio’s value can be unlocked even if you don’t sell a single share in the open market.

If you haven’t checked it out already, here is a free stock loan calculator to help you size out a loan for your shares.

Simply enter a symbol and the number of shares you own, and you’ll see a potential loan amount that we can fund quickly.

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You can look beyond the stock market to add alternative assets, like shares or debt from a private company, real estate, or collectibles like artwork. These different asset classes respond to market conditions in different ways. For instance, when stock markets fall, the value of physical gold increases. With proper balance in your portfolio, the gains in one area can help offset losses in another. 

Also, some non-traditional investments bring additional income-earning potential. For instance, assets like real estate provide opportunities for rental income, low-interest secured loans, and tax benefits. 

Assessing Risk and Return

All investments come with risks and potential rewards. In general, the goal is to balance riskier investments with safer ones to ensure steady growth. However, the amount of risk investors can tolerate depends on different factors.

Younger investors who are just starting a retirement account may be more willing to buy risky assets. This is because they have time to build up savings, even if the investments don’t pay off. 

Investors with larger retirement accounts and those who are approaching retirement age wouldn’t have time to recover from investment setbacks. Therefore, they usually seek steady returns with lower risk. 

Securities-Backed Loans Explained

Securities-backed loans, also known as stock loans, allow you to secure a loan with stocks from your investment portfolio. You can qualify for a stock loan with stocks from major exchanges in the U.S. or some over-the-counter (OTC) stocks. These loans cannot be secured with stocks held in 401(k) or IRA accounts, but you can use securities from non-retirement accounts for the loan, even if you are already retired. 

Securities-backed loans offer several advantages. For example, they allow easy access to cash without requiring you to sell your stocks — so as long as you pay the loan off, you can continue to let your stocks increase in value until you are ready to sell. 

Like all investments, securities-backed loans offer both benefits and drawbacks:

Pros and Cons of Securities-Backed Loans

Securities-backed loans can offer access to cash without requiring you to sell your assets. You can also use it to pay for additional assets in your retirement plan, such as real estate investments, or any current expenses such as medical bills or senior-living care. However, you need to consider the potential advantages and disadvantages before deciding to use this option. 

Benefits of stock loans include:

  • You can keep your securities, and they may continue to increase in value throughout the duration of the loan. 
  • You often enjoy low interest rates because the loan is secured by your stock holdings. You can calculate the interest rates and repayment terms to see if this loan type works for you. 
  • You don’t have to put up other assets, such as your home, as collateral for the loan. 

Also, if your stocks increase in value during the loan, you will have access to the additional profits after you pay off the loan.

You also need to be aware of the following drawbacks:

  • You have to hold the stocks used to secure the loan during the payoff period. You won’t be able to exit your positions. 
  • Lenders could require additional deposits if the value of your stocks declines during the loan period. 

You also need to consider the interest rate on the loan. Though the rate can be lower than an unsecured loan, it could have a variable, meaning it could rise. And when that rate increases, so does the cost of repayment. 

Strategies for Incorporating Non-Traditional Assets

Non-traditional assets can be part of a balanced retirement portfolio. However, you need to carefully decide how to incorporate these alternative investments into your plans. 

First, you need to consider factors like risk tolerance and time horizon, which is the amount of time you plan to hold the asset. For instance, purchasing a residential property as an investment will require a long-term commitment, while other assets, like real estate investment trusts (REITs), are more liquid.

Additionally, some investments, such as private equity or collectibles, require a significant amount of knowledge. Unless you’re familiar with an area and understand how to select assets, you might be better off looking at other asset classes. 

You also need to consider how much you want to put in alternative investments and how much you plan to keep in traditional securities. 

Building a Diverse Investment Portfolio

The process of diversification ensures you have a good balance between traditional and alternative investments — it essentially ensures you aren’t risking too much capital in one area. The amount of diversification you need can vary depending on your holdings and financial goals. Some experts suggest using between 15-30% on alternative investments, but the range can be between 5-50%, with high capital investors usually putting more money into alternative investments than average investors. 

The conditions of the economy and financial markets can affect the balance of your portfolio. You may need to rebalance to ensure the traditional and alternative assets still produce the right ratio or risk to reward. For instance, as you approach retirement, you may want to reduce higher-risk assets and add additional income-producing investments, like a rental property.

Modern Approaches to Retirement Planning

Technology has made self-directed investing easier. Personal brokerage accounts make it easier for individuals to buy and sell stocks and bonds. REITs, private equity platforms, and peer-to-peer lending make it easy to add alternative investments to your portfolio as well. Even collectibles are more accessible via vendors on sites like eBay. 

Though tech makes investments more accessible, it can also help select and manage assets.

Technology and Retirement Planning

Download the Free Stock Loan Calculator

Your portfolio’s value can be unlocked even if you don’t sell a single share in the open market.

If you haven’t checked it out already, here is a free stock loan calculator to help you size out a loan for your shares.

Simply enter a symbol and the number of shares you own, and you’ll see a potential loan amount that we can fund quickly.

Download the free Stock Loan Calculator now

Artificial intelligence (AI) software can help investors select assets based on their risk tolerance, amount of capital, and time horizon. These tools may be able to help you select different assets and ensure your portfolio has the proportions for your desired investment outcomes. 

These platforms make financial advice more accessible to all investors. Online brokerage accounts and trading platforms make it easy to access different asset classes and manage your retirement account. 

With a balance of traditional and non-traditional assets, you can create a diversified retirement portfolio that meets your timeframe, risk tolerance, and long-term plans.


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