I was tempted to call title this post “Alternative Alternatives” but it seemed more confusing than clever. In previous posts I have covered traditional asset classes, an overview of alternative investments, commodities & gold, real estate, and miscellaneous other alternatives. In this post I will talk about investment opportunities that are generally not even noticed as investment opportunities. Many of these I have written about previously so I won’t repeat that here, but will rather link to the other piece.
- Prepaid taxes. If you are in a lower tax bracket now than you will be in retirement you can “invest” by prepaying some taxes now at the lower rate. How? Roth conversions and capital gain harvesting.
- Paying off (or down) debt. Paying off (or even down) debt is a very good fixed income investment. This can even extend to paying off your mortgage.
- Delaying Social Security benefits. Not taking Social Security until later is an investment. The current foregone benefits purchase higher future benefits and the returns are extremely attractive.
- Life Insurance. We consider a great deal of life insurance to be inappropriately sold, but there are opportunities. Term insurance with a return of premium rider can be attractive in the right situation, as can permanent insurance, but those situations are fairly rare.
- Human Capital. Investing in improving your skills or knowledge (particularly if you are young) can be one of the best returning investments of all.
- Market Guarantees. These are typically not good investments and should be avoided. They go by the names of equity indexed annuities, Guaranteed Minimum Income Benefit (GMIB), Guaranteed Minimum Withdrawal Benefit (GMWB), etc. These are very expensive and in reality the “guarantee” is that you will almost always have far less wealth than you would have by doing something else with your funds. There is no free lunch and you cannot get market returns without market risk. I wrote about a few similar products here.