You Need To Rethink How You Invest Your Money: My "New" Allocation
I think it's time we rethink our portfolios, especially from that 60/40 recommendation of the past. In this episode, I talk about why it’s time to add 20-30% in alternative investments—think real estate, lending funds, and even franchises—to balance your growth and give you more control.
Diversifying outside just stocks and bonds can help you sleep better at night and potentially boost your returns. I also share how to use self-directed IRAs and why a Roth IRA should be top of mind.
3 takeaways from this episode:
Modern Portfolio Mix: The classic 60/40 (stocks/bonds) split is making changing for a more diversified mix—what Michelle calls the “50/30/20” model: 50% stocks, 30% bonds, and 20% alternatives.
Strength of Alternatives: Michelle sees alternative investments (like lending funds, real estate, and franchises) not just as a buffer from market volatility, but also as potential replacements for part of the bond allocation.
Roth IRA Strategy: I stress the importance of the Roth IRA and why you should keep it top of mind in your retirement planning. Consider a backdoor Roth IRA.
Links:
Take the quiz - How Alternative Assets Can Fit in Your Portfolio
Time Stamps
00:00 Introduction to the Unconventional Investor Podcast
00:29 The New Portfolio Allocation Strategy
01:47 Alternative Investments: Lending Funds and Franchises
03:12 Real Estate and Diversification Benefits
06:39 Roth IRA and Tax Strategies
07:42 Personal Portfolio Strategy and Client Advice
12:38 Final Thoughts and Contact Information
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Introduction to the Unconventional Investor Podcast
Welcome to the Unconventional Investor Podcast. I'm your host, Michelle Moses, certified financial planner, licensed realtor, and founder of ME Financial. If you're an accredited investor feeling overwhelmed by managing your portfolio and looking for alternative investment strategies that go beyond the traditional stock market, you're in the right place.
Let's head into today's episode so you can start taking control of your financial future. Hello everyone and thank you so much for tuning in. Today is gonna be a solo show with just me.
The New Portfolio Allocation Strategy
I want to talk about something that's been coming up in the news and that is very pertinent to what I talk about is a new way to think about how you should allocate your portfolio.
And I'm really glad I saw this in the news because it shows me that I'm also on the right path, and this is what I've been preaching for years about alternative investments. And it's the whole, you see all these articles on like money and. Whatever, all the, Yahoo, all those places and they talk about how you should have your portfolio or whether you should take 3% retirement and that kind of stuff that you I see it all the time.
And they used to say it was like a 60 40, 60% stock, 40% bonds, and now they're saying that you should have at least 20% in alternatives. Which is what I have been talking about people. I have been talking about having some of your money in alternatives so that you do not have to ride the waves of the ups and downs of the stock market.
So I could not agree with this more. So the adage is that it's 50% stocks. 30% bonds and 20% alternative investments. I think if you're really into alternatives, I don't see any reason going up to 30% is not a big deal. I think with alternatives, which you have to deal with more so and think about is liquidity.
And if you've been listening to some of my episodes, there are some alternatives that mostly the lending funds that have, I wouldn't say high liquidity, but you would be able to get your money out after a year, no problem. So there are some. Options in there that I think would be good. And I do think that some of them are good options for replacing the bond portion of your portfolio.
And they even say that in some of the episodes, but it is really the lending ones. That I think could possibly replace some of the bonds in your portfolio if you wanted to. And there are some I just did an episode with F Shares, which is investing in franchises and I wanna do more episodes about crowdfunding.
I do think that's gonna get bigger and, I don't. I agree with the accredited investor standpoint that you do need to be accredited investor to invest in some of these things, but it also keeps back some people that are just stuck in stocks and bonds and they would like to invest in some other things.
The franchises would, are allowing people to. To do that. But anyway, if you can't, if you're not an accredited investor and you want to do alternative investments, there are some things that you can do If there's some mutual funds and ETFs out there that you could diversify into.
Real Estate and Diversification Benefits
The point is it could also be real estate. I guess you could look up a real estate investment trust and R-E-I-T REIT. And I do think that al having alternatives in your portfolio, it gives you, I. A sense of control. And I think the more that you diversify outside of the traditional stocks and bonds, it's gonna help you feel better and to, be able to sleep at night.
Really, you're not gonna be worried about the stock market going up and down so much. And I find that's what people, you don't have any control over it. And so it is very stressful and. I could think of nothing more stressful than to have all of my investments in just the stock and bond market because I feel like there's just no control over that.
And it's not to say that I. I am in control of these businesses that I invest in. It's just that I understand them more, or I have chosen them, for their management of these hotels. I have chosen them for the management of, whatever they're managing of that apartment building or if it's a data center.
And so you're just more interested in getting the newsletters and seeing what's going on rather than it's just this nebulous, big, huge swath of stocks in a mutual fund. So I think people are always surprised that I'm a financial advisor and that I don't love the stock market. I think that it is necessary to grow your your wealth.
And I think that's just an option that you have. But I don't think it's something that you need to spend a ton of time on researching. Like people, it cracks me up because people are like, did you see the market today? And I'm like, yeah, no, I didn't. Ha, because I am planning people's lives. I am putting together all of the pieces.
And then you let that thing, which is the stock market, go do its thing and it's going to behave like it's going to behave. I'm not saying you shouldn't look at it, but it's gonna behave the way that it's gonna behave. And if you invested the way that you. Short term, long term, I'm trying to say, growth, that sort of thing, and the way that aligns with you, then you should just let it ride.
And I just think that the media has not done us any favors by. Making people think that they need to research all of these different stocks, or that they need to know exactly what is, in their portfolio. I just don't think that you're gonna understand it. I'm not trying to put people down or anything, but it's it's so super complicated and unless it's gonna be your hobby, that's something that you wanna look at all the time.
I think you should just get some good ETFs or good mutual funds and just. Keep saving in it in your 401k because the stock market is where you have to invest in, your 401k. So let's pretend that you just have a 401k and that's it, and it's all in one big pile, and you wanna diversify into alternatives.
If you did wanna do that, most 4 0 1 ks will allow you to take out a portion of your. Balance and move it over into an IRA. So you could move it into an IRA and then you could invest in alternatives, but you are going to wanna keep them like in separate accounts so that you can see the separate returns.
And most of the time, if you're doing an alternative investment in an IRA. You are going to you're gonna need to do in a self-directed IRA, which of course I've done another podcast on if you want to listen to it. And I do need to take this time just to plug the Roth IRA. I want to remind you that with the secure act that was passed in 2018, I believe that the Roth IRA is king.
Now, you do not want to max out your IRAs and your 4 0 1 Ks and all of that because when you pass your. Kids or whoever inherits your money that is not a spouse. If they are 10 years younger than you and you put them as a beneficiary, they're gonna have to take out all of that money within 10 years, and that is a huge.
Tax deficiency. And so what you really wanna focus on is getting your Roth IRA up. And so I wanna just take this time to plug it, continue to plug it that if you cannot do a Roth IRA, I want you to do a backdoor Roth IRA and everyone is eligible to do a back backdoor Roth IRA as long as you have the cash to do it.
Again, I have another podcast about that if you would like to do it and I can. I can tag it in the show notes. So I'm just that little thing there. And so what my plan is, and so I'm going to, so you have your 50, your 30, and your 20% in the alternatives.
Personal Investment Plans and Client Experiences
My idea is that when I get closer to retirement, I would like to put an alternative that pays monthly or quarterly income.
Out of my Roth IRA, because then that income is going to be tax free. So this is my plan for my Roth. And so right now I am 49 years old and so I have it more in a growth investment. But my plan when I get closer to retirement is to then switch it to more of an income so that income could then be paying me every month or every quarter, and it would be tax free.
And so then you have some money coming out of your IRA also. That would be then be taxable. But you don't wanna take out too much out of your taxable accounts at one time because then obviously then you have too much tax. And it kind of messes with your social security and if that's taxable and it gets complicated.
And so my plan is to have all these different, I'm not gonna call it buckets, but I'm going to, all these different accounts. And I wanna take some outta the IRA, some outta the Roth IRA, and then I could use some of my cash. But that's the goal that you're going for here. But the new portfolio idea is the 50, 30, 20, and I don't even know if you need the 30% if you're young.
There's a whole school of thought out there that's like, why are you taking, why would you even put money in bonds if you've got the time? The stock market has proven time and time again. That it's going to grow and it's gonna give you the best return. So if you just set it and forget it and just keep investing, you could make that 80% stock and 20% alternatives.
But I really do think that you need to have some alternatives in there. Just is. Because not so many companies, there aren't as many companies going public, and so it is becoming like a smaller and smaller field of stocks to choose from. And again, I think the diversification is amazing. Some of these alternatives, you're shooting for a 15 to 22 to 25% return on these items.
They don't work the same way as a stock does. You aren't gonna get the daily valuations and be able to see all the GRA pretty graphs and all of that, but it is going to help your return and it's going to help even it out. So for me, I'm argue, this is me that knows all of this stuff. I have stocks and I have alternative investments.
I don't do bonds. I do, I have a cash savings, like an emergency savings. And to me that's just. What I would need. I'm not going to go into my bond investments in order to get cash. So I do see the rationale with that, but my job is to work with people so that they can sleep at night. And so we will often put bonds in there so that they don't have to ride the stock market up and down completely, the highs.
But if you have the stocks, the bonds in there, you are not going to get the highest stocks and you're not gonna get the lowest lows. You're going more like in the middle versus. I feel I'm achieving the same thing with my more like 70% stocks and 30% alternatives. And when I say alternatives, I mean you could be doing real estate.
I have some clients that they hate the stock market and we just do it for just a little bit. And then they have all like home rental homes and things they love real estate. And. Again, I think another tangent is if you don't like the stock market, then I would not invest in it because the people that don't like it, I, they don't it.
It's incredible. They just don't make money or they don't make a lot of money, and they make a ton of money in real estate because they like it. They're interested in it, they're always looking for things and then we're partnering on it. So whatever you're really interested in, then try to get into that.
And even if it can't happen right now, it could happen in the future, as you're starting to read about it. Or you could buy some sort of. If there's a derivative stock or mutual fund for everything out there today. So you could at least invest that way and start researching. So anyway I know I've gone off on a lot of little different tangents there, but yeah, your portfolio mix, I think just looking at it from an overview, I think it would be great to to allocate.
The 20 to 30% into alternatives. And I, my clients love 'em. They love getting the newsletters about these businesses. They love learning about the businesses and what they're all about. And the returns have been great. I'm not saying on all of them. Some of them do go sideways or last a long time.
But on the whole, I think a lot of them are really great. Yeah, the new portfolio mix is now 50, 30, 20. But mine is 70 30, but I just do 30% in alternatives. I hope this helps. I know this is a short one and just a little tidbit of how I want you to start thinking about the, your retirement structure of your accounts and what the investments are inside of them.
If you have any questions, you're welcome to call me. I have a link on my website that's for a free 15 minute consult. You're, we can just chat a little bit about what you need, see if it's a good. A good match. And I also have a quiz on there about how alternatives can fit into your portfolio and so it divides it up into income, into growth and, mixed use and stuff like that.
So anyway let me know if you have any questions and thank you so much for listening you guys. I hope you have a wonderful day. Thank you for listening to the Unconventional Investor Podcast. I hope you feel more confident in how you can grow your wealth using the strategies I shared in this episode.
If you're ready to take the next step in diversifying your portfolio outside the stock market with alternative investments, head to me financial.net/contact us to book a 15 minute consult call with me. Let's discuss how we can work together to achieve your financial goals. Until then, I'll see you on the next episode.
Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.