Creating Portfolios That Are ‘Not for the Faint of Heart’

Real estate makes up 90 percent of the portfolio of Audrey Smith, outside a property she owns in Inglewood, Calif. Credit...Jenna Schoenefeld for The New York Times

Audrey Smith knows what’s it like to plant a seed and watch it grow. One of 11 children, she worked in the fields of her family’s farm in Texarkana, Ark., and ate vegetables they grew.

But Ms. Smith didn’t want to farm for a living. So she attended college and moved to California for graduate school to become a registered dietitian. For 41 years, she worked her way up the ladder at Watts Healthcare, a health maintenance organization, until she retired nearly three years ago as the director of preventive health services.

Along the way, she raised a family, became a real estate agent and started planning for retirement in her 30s by investing primarily in real estate, taking a route to building her savings that is somewhat off the beaten path.

Instead of relying on financial advisers or Wall Street’s standard fare, some retirement investors build their nest egg by creating their own investment portfolio. Their main revenue source may be residential or commercial real estate, businesses or even precious metals. It’s not unusual for these investors to hold some mutual funds, equities or bonds, but those are secondary.

Even during the best of times, investing in alternative holdings often requires grit, stamina and some elbow grease. Still, anything can lose value. Leading up to the 2008 financial crisis, homeowners and investors thought prices would never fall — but the market imploded. During the coronavirus pandemic, with a volatile stock market and the U.S. economy in a deep recession, people remain concerned about whether their longstanding investment strategies and assumptions will see them through.

“I used to tell my parents and family that I was not going to be poor when I grew up,” said Ms. Smith, 72, who lives in Inglewood, Calif. “This motivated me to invest in income properties and stocks.”

For the past four decades, she has built a retirement portfolio that includes seven apartment buildings with 15 units that she owns and manages. About half of these, she said, are Section 8 properties, where low-income tenants receive federal housing assistance. This guarantees her some rental income and could help mitigate any loss of rent from other tenants affected by the pandemic. (Ms. Smith said that so far, only two of her tenants had difficulty paying rent.)

The strength of the housing market in Los Angeles has helped protect Ms. Smith’s nest egg. Over 30 years through March, residential housing prices in Los Angeles increased 194 percent, compared with 180 percent nationwide, according to the S&P CoreLogic Case-Shiller Index.

Historically, Ms. Smith said, the value of her income properties has held up because of the scarcity of rentals. “Here in California, people are always looking for a place to stay,” she said. “If you take care of your property and you’re good to your tenants, they don’t leave.”

She has structured her retirement portfolio to reflect this reality: Real estate makes up 90 percent of it. The remainder is invested in a traditional individual retirement account that she rolled over from her previous employer’s 401(k) plan.

original article: https://www.nytimes.com/2020/06/20/business/retirement-portfolios.html

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