Photo:
Getty
I belong to an overlooked market segment in this country — one that is not often discussed because from the outside looking in, it seems that we are everything but overlooked. We are often included in the “wealthy” category, and sometimes referred to as “upper-middle class.” I like to call us fortunate.
We still watch our money, and if we prioritize, we can afford all the necessities and more. We do indeed comprise most of the top 5% to 15% in income and net worth, but make no mistake — we have little in common with the top 1%, and are absolutely nothing like the top 0.5%. I maintain that many of us have been left woefully unprepared to manage our money for retirement.
After my dad was “aged out” of the workforce in his early 60s, my mother retired from teaching third grade a few years later. They were told by their financial advisor, just as many of us are, that if they followed his advice, their investments and my mother’s pension would provide them with a fantastic retirement. They did as instructed: invested in index funds and diversified with safe bond funds and put some in an annuity. The problem was that like many financial advisors, their advisor didn’t know much more than they did.
What I know now is that Wall Street tells us to be in it for the long haul, but the market trades in nanosecond increments and goes up and down. A 10% average return is what we’re told to expect, but when that market is down and you have to sell the stocks to live, good luck with that. I watched what wealth my parents had disappear because that 7% annuity that their advisor got them into and that 401(k) that the government required them to draw from just wasn’t enough when they were no longer working. Since the market was down, once they made that withdrawal, the golden goose was gone, and they could never make it up. Taxes decimated them. Their dreams of a comfortable retirement and inheritance for my brother and me were gone.
So I began to study the uber-wealthy — the top 1% — and that’s when I discovered that generational wealth is quite often not built via commercially available investment vehicles like stocks and bonds.
You see, there is a club that the uber-wealthy have been known about for generations, a club with access to investment opportunities that most of us don’t even know about. They know that mutual funds, even the no-load ones, cost much more than Wall Street tells us they do. Those in the club also know that private investments typically have higher returns, less risk and tax breaks galore. To join the club, most of the time, you must qualify as an accredited investor, and then you have to know where to look to find investment opportunities for accredited investors.
To become an accredited investor, you much meet certain financial criteria. In short, you must have either a significant income or significant wealth. Specifically, a person needs to earn more than $200,000 (or $300,000 combined with a spouse) in each of the prior two years and reasonably expect to earn the same for the current year. Alternatively, the person needs to have a net worth of $1 million or more (alone or with a spouse), excluding the value of a primary residence.
If you are close to meeting the criteria above, you can often qualify as a “sophisticated” investor and have access to some opportunities. I’ve found though that the door opens all the way if you are accredited.
A simple Google search can get you started learning about private investments. I invest mostly in real estate, where opportunities range from the very safe and steady income of multifamily syndications to ground-up construction, offices and strip malls — you name it. There are also opportunities in oil and gas, and private funds that invest in all sorts of things, even the burgeoning cannabis industry. In the past few years, legislation has opened up opportunities for small investors to invest as little as $1,000 via crowdfunding sites. In addition to real estate, there are crowdfunding avenues for art, mortgages and even music rights.
The point is that once you begin to explore investment tiers that you may have felt or been restricted from previously, “diversifying” takes on a whole new meaning. As with any investment, take your time to do your due diligence and talk with your CPA, but know that there are some fantastic private opportunities out there to diversify from Wall Street.
After all, there is a chance that you may be eligible for a club that could bring you solid cash flow, preserve your capital and build generational wealth in the process. That’s good for all of us, accredited investors or not.