Kiplinger

Retirees, Don't Get Stranded Hunting Returns

Retirees seeking yield and diversification are venturing into some murky waters. With valuations lofty and yields low in the traditional stock and bond markets, many older investors are casting about for alternative investments that can offer attractive distributions and low correlation with plain-vanilla investments. In some cases, they're turning to "interval" funds, which offer access to more exotic, higher-yielding investments than those typically found in traditional mutual funds; non-traded real estate investment trusts, which often sport distributions of 6% or more and are not listed on an exchange; and private placements, which are unregistered securities offered privately to investors rather than sold in a public offering.

Sales of such holdings are soaring. Non-traded REITs are expected to raise $10 billion this year, more than double their 2018 sales, according to Robert A. Stanger & Co. Interval funds held nearly $30 billion in mid 2019, up 25% from a year earlier, according to Interval Fund Tracker, a website that follows the funds.

"We're absolutely seeing more and more wealth-management clients allocate to alternative strategies" in search of yield, higher total returns and diversification, says Eric Mogelof, head of U.S. global wealth management at Pimco, which launched its first two interval funds in 2017 and 2019.

Such benefits, however, come at a cost. Compared with traditional investments, these holdings can have much higher fees and lower liquidity--meaning it may be difficult or impossible to get

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