Invest With An Objective – Invest With Certainty

Is speculating investing? You wouldn’t confuse gambling with investing, yet many investors consider stock picking and rolling the dice on hot new stocks investing.

What is the investing objective of picking stocks or speculating on the next big thing? If people are honest, they’ll tell you their investment objective is to get rich quickly, not unlike gambling or playing the lottery.

Behavioral economics tells us that acting on impulses to find the next big thing to make a quick buck makes us feel good. Like any other thrill that releases endorphins, speculating on stocks makes us feel good. However, investing based on our impulses tends to end poorly.

​​Hunt, Dan (May 22, 2023)  Why Having a Goal Is Key to Investing. Wealth Management.

True investing should start with a specific goal and timeline – for example, financial independence by age 45.

It’s important to have a goal in mind to devise an investment strategy around that goal to achieve your objective. Speculating is not an investment strategy. That’s why smart investors avoid speculation and gravitate towards certainty.

To invest for certainty, more investors are turning to private debt. According to a recent report, institutional investors and ultra-high-net-worth individuals (UHNWIs) are showing an increased interest in private debt. Specifically, pensions and endowments are gravitating towards its consistent and relatively secure income streams.

​​David, Benjamin (Aug 15, 2023) Bright Outlook for Private Debt, But Challenges Remain.

Stocks and traditional portfolios don’t cut it for achieving financial independence. Much has been written about the demise of the 60/40 model. That’s because the problem with the 60/40 model is that the security that bonds have traditionally provided when stocks fail no longer exists.


That’s because of two reasons:​

  • Bonds haven’t always moved in the opposite direction of stocks.
  • The current 10-year Treasury yields are insufficient to compensate for major stock declines.


In a recent letter to clients, Morgan Stanley warned that returns from a 60/40 portfolio would be the lowest in 100 years. It projected returns to be just shy of 3% a year over the next decade. Average annual inflation over the past 20 years has been around 3.22%. Considering inflation, that’s a projected net annual loss of 0.22% per year over the next decade if you stick to the 60/40 model.

The traditional 60/40 model is dead, but UHNWIs are playing with their own version of the equity/debt mix. However, instead of allocating to a mix of public equities, bonds, and treasuries, UHNWIs are allocating to a mix of private equity and private debt.

UHNWIs have always had an affinity for private equity and a mix of commercial real estate and private fixed income, as evidenced by the following chart.





The preceding chart is the latest asset allocation report of TIGER 21 – a peer-to-peer investment network consisting of UHNWIs, with each individual required to show $50M in investable assets to join.

Each quarter, TIGER 21 publishes an asset allocation report to the public showing how they invest. According to the latest report, these UHNWIs allocated more than half of their portfolios to investments in private companies (i.e., private equity or “PE”) and commercial real estate (“CRE”). Along with PE and CRE, UHNWIs are increasingly adding private debt to their portfolios.

So why the affinity by UHNWIs for private debt? Private debt offers high returns with more certainty, which is an ideal counter to private equity returns.

According to the CFA (Chartered Financial Analyst) Institute, the average monthly return from private debt according to its private credit index was 1.53% a month. That translates to an 18.36% annual return. You can now see the value of including private debt in your portfolio.

A portfolio allocated to a mix of private equity with a conservative IRR of 12% and private debt returning a conservative 12% a year achieves the type of balance the 60/40 portfolio used to provide, but that can no longer offer. In the private markets, with a long investment window, if the equity portion ever lags, private debt is ideal for picking up the slack by ensuring a continuous income stream, usually backed by a hard asset.

Private fixed-income assets backed by hard assets with long-term windows ensure future cash flow and provide investors certainty. This certainty allows smart investors to plan around their investment objectives to achieve their goals.