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Alternative Investments Aren’t For Everyone

By U.S. News & World Report

Often, pre-retirees and retirees begin to invest more conservatively as they age. The general idea is that as their earning power diminishes once they are out of the workforce, it is sensible to scale back on riskier investments to prevent unexpected or drastic losses.

Yet, some older investors perceive alternatives as a way to diversify their portfolio and potentially seek higher returns or income. Before taking the jump into alternative investments, take these steps to make sure they are the right choice for your portfolio.

Consider your age, employment situation and savings. If you are still in the workforce, factor in how many years you have until retirement and calculate what your nest egg will look like. Ask yourself if you plan to work part-time in retirement, what your desired lifestyle looks like, and whether or not it is attainable given your expected savings.

[See: 6 Strategies to Avoid Working in Retirement.]

If you have already officially retired, ensure you haven’t taken on any debt and evaluate whether your lifestyle is sustainable given your retirement savings. If your expected or accumulated wealth isn’t sufficient, resist the temptation to chase higher returns and instead focus on how to invest your money safely.

On the other hand, if your long-term investing strategy has paid off and you have built significant wealth that is more than enough to support your lifestyle, you may have the capacity to take more risk with your investments.

Stay true to your risk propensity. Even if you have achieved financial success and have a solid plan in place (which may suggest you have a higher risk capacity, or ability to take on risk), you may not be comfortable taking on an inordinate amount of risk (meaning you have a lower risk propensity, or willingness to confront the possibility of a loss).

Make sure you have a complete understanding of your risk tolerance and monitor its alignment with your portfolio. Speaking with your financial advisor regularly will help ensure that your portfolio is designed to achieve your individual financial goals.

Once these steps are taken, you’ll have a better idea if any of the various types of alternatives would make sense for your personal circumstances.

[See: 13 Ways to Take the Emotions Out of Investing.]

Look under the hood. If all of these factors are considered and you and your financial advisor agree that investing in alternatives could be a strategic choice for your portfolio, make sure you do thorough research into aspects such as the following:

— Liquidity: Alternatives such as private equity and real estate investment trusts lack liquidity, which means the holdings can’t be quickly bought or sold, and oftentimes there is a period of time when your money is “locked up,” regardless if you want to sell it. This time horizon can be a major issue particularly for older investors. If you do choose to invest in illiquid alternatives, make sure you have enough liquid assets in case of an emergency.

— Volatility: Make sure you can stomach the volatility, or the amount of uncertainty about potentially substantial fluctuation in value, of alternatives like gold and commodities. Include these in your portfolio only if you have a strategic rationale, and work to study and understand them first.

— Valuation: Illiquid alternative assets are not publicly traded and priced, so it is difficult to determine what a true fair value of the asset is. Additionally, any pricing that is provided by the alternative asset company is delayed (they are normally priced with a month or quarter-end value).

— Fees: Management fees are higher for many alternative investments. Make sure you understand the structure and decide whether it affects your perceived value of the investment. For example, hedge funds traditionally charge 2 percent of total asset value and 20 percent of profits earned, which is much higher than what financial advisors and mutual funds charge. Additionally, many custodians charge an annual fee to hold alternative investments in order to offset the cost of additional certifications that they are required to have in order to custody illiquid assets.

Work with a financial advisor you trust. Too many Americans have been swindled by financial professionals who are looking to earn high commissions by selling investments that may be extremely unsuitable for their clients. Although the industry considers an individual with $1 million or more in assets to be an accredited investor, this does not mean that it is always appropriate to put him or her into hedge funds, private equity, or other alternatives that may be illiquid or associated with high fees.

Make sure you are working with an advisor who will transparently provide information on not only liquidity and fees, but other factors such as volatility, returns and taxes. You should also feel comfortable asking them if they are a fiduciary and how they are paid. If they are hesitant to answer or provide a convoluted or disingenuous response, consider taking your money elsewhere.

Alternatives are not all made equal, and as such shouldn’t be considered “good” or “bad” investments. As with any financial decision, it is important to first consider the rationale, pros and cons, and alignment with your risk tolerance and overall portfolio before making any investment.

[See: 10 Questions to Ask Before You Hire a Financial Advisor.]

Doing your research and consulting with a trustworthy financial professional will help you make a sound judgment that will both protect your money and keep your mind at ease.

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Alternative Investments Aren’t For Everyone originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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