Why You Want “Walls Investments” in Your Retirement Portfolio

The following is adapted from The Retirement Secret.

Investing for retirement can be thought of as building a house. You have Roof investments, which include accounts that fluctuate with the day-to-day swings of the market. You also have Foundation accounts, which include accounts that have some kind of underlying safety or guarantee. 

Then you have the component that goes in between and connects the Roof to the Foundation: the Walls. 

Walls investments tend to be less volatile than Roof investments. They lack backing by FDIC, the US government, or any annuity and insurance company like the Foundation. Their returns tend to fall somewhere in the middle. They’re not the same thing as endowment-style investing, which is a common approach used by universities and other nonprofit organizations, but they are related. 

As you’ll see, Walls investments have several advantages, like increasing diversification, being resilient to market swings, and providing backing for principal, which is why every retirement portfolio should include them. 

Walls Investments Increase Diversification

The first reason to include Walls investments in your portfolio is simple: for diversification. 

There’s no such thing as the perfect investment, which is why you want several different kinds of imperfect investments. One investment’s weakness might be another’s strength, and by including a variety of investments in your portfolio, you’ll be better protected against specific kinds of loss. 

For example, if you have all of your investments in the stock market, you’ll take a huge loss if the market crashes. But if you only have half of your money in the stock market and the other half in Walls investments, your loss will only be half the size when the market crashes. 

Walls investments help you diversify outside of vehicles like stocks, and you can then further diversify within the Walls. You see, you should not have all your Walls money in one thing. Common Walls allocation options include real assets, real estate, oil and gas, secured private debt, and real estate debt. Diversify your portfolio by investing in several. 

Avoid Day-to-Day Market Swings

The second reason to allocate to the Walls is to seek to avoid the day-to-day swings of the stock market. This is probably an obvious benefit to an investor, especially one close to or in retirement, but I argue that this has become far more important over the past generation or two.

Think about how the stock market moved prior to cable news. How often were you able to keep up with the news? 

You probably either watched the evening news or read about it in the newspaper. If you wanted an update during the day, it would have had to come from listening to the radio. The news simply did not travel fast.

Now think about how twenty-four-hour news channels changed things. First came CNN, then channels that focused specifically on money and investing that would even show the Dow Jones changing second by second. Suddenly, the frequency of information and news changed dramatically. 

The speed of news causes a complication for investors. Nowadays, just about anything can swing the stock market in one direction or the other. For this reason, it can be advantageous to put money in investments that are more resilient to day-to-day swings. Walls investments can avoid or at least reduce those swings, which is why they are a valuable addition to your allocation. 

Seek Backing for Principal

The third purpose for someone to place funds in the Walls is because these investments are generally backed by something. Although stock market investments can lose most or even all their value in a day, most Walls investments are backed by something real, which can provide more stability.

Think of companies that have retail stores throughout the country. Let’s use Walgreens as an example. If you own stock in Walgreens, it could do very well. But what if Walgreens were to go out of business? 

You would lose all the money you had in that stock. Now, let’s look at it a little differently. Instead of owning stock in Walgreens, what if you own the buildings that Walgreens rents? Now, what happens if Walgreens goes out of business?

Instead of losing everything, you could rent the building out to a different company. This is what I mean by Walls investments being backed by something. This doesn’t guarantee that you can never lose; it is simply another way to try to lower the risk of loss of your investment.

Walls Fill the Gaps in Your Portfolio

By increasing diversification, providing resiliency to market swings, and backing your principal, Walls investments can fill the gaps in your portfolio left by other types of investments. 

Along with the Roof and Foundation, Walls are an important part of your stable retirement “house.” Allocating to the Walls brings your portfolio more stability and decreases the risk of single-cause losses, meaning you can rely on your portfolio in retirement. 

The Walls aren’t perfect, but with investing for retirement, the goal isn’t to pick the one perfect investing option—there is no such thing! Rather, the goal is to invest in a variety of these options, which should include Walls investments, to create the strongest portfolio possible. 

For more advice on investing for retirement, you can find The Retirement Secret on Amazon.

For over twenty years, Pat Strubbe has taught retirees and pre-retirees how to preserve their assets and increase their income. After watching his own parents struggle when his grandfather needed help, Pat made it his mission to help others avoid that pain. He has been featured in USA Today, Columbia Business Monthly, Investor’s Business Daily, and other national publications, and is a regular contributor on WIS News. You can listen to Pat host the radio show Save Your Retirement on WVOC (560 AM). Pat lives in Columbia, South Carolina, with his beautiful wife, Janelle. He’s the proud father of four children: Carter, Ava, Gabriella, and Isla.

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