
Looking for ways to boost your investment income? You might want to explore private credit. Think of it as lending money directly to businesses, rather than buying their publicly traded bonds. While traditional investments like stocks and bonds are still important, private credit offers a different way to potentially earn more.
What is private credit?
Private credit is basically loans made directly to companies that aren’t traded on the stock market. It’s a growing area of investing, and it’s becoming more popular as investors look for new ways to generate income.
Why consider private credit?
- Potentially higher returns: Because these loans are less easily traded (less “liquid”), investors often get paid a higher interest rate compared to similar public bonds. This extra interest is called a “liquidity premium” and can boost your returns.
- Potentially less risky: Historically, these types of loans have had lower losses than similar public debt. This can be because lenders do their homework carefully, build close relationships with the companies they lend to, and have more control if a company struggles.
- Better protection: Private credit loans are often “senior secured,” meaning lenders get first dibs on a company’s assets if it goes bankrupt. This gives them better protection than other lenders.
How can private credit help me?
Private credit can be a helpful tool for people planning for retirement. The higher potential returns and lower potential losses can lead to a more dependable and potentially larger income stream compared to traditional investments.
Is there a catch?
Yes, private credit isn’t as easy to buy and sell as stocks or bonds. This is the “liquidity tradeoff.” It’s why you can potentially earn more — you’re accepting less flexibility. However, this illiquidity can also mean you might achieve similar returns with less risk.
Things to keep in mind
- Rely on expertise: It’s important to understand the specific private credit investments you’re considering. Let your Signet advice team help you assess the track record of the team managing the loans and the quality of the companies they’re lending to.
- Understand the risk: Make sure you understand and accept the unique risks of private credit investments before investing.
- Stay liquid: Because private credit is less liquid, make sure you have enough other investments that you can easily access if you need cash.
The bottom line
Private credit can be a valuable addition to your investment portfolio, offering the potential for higher returns, lower losses, and better protection. Let’s talk about your specific situation and how private credit might fit into your overall investment strategy.
IMPORTANT DISCLOSURE
This is a publication of Signet Financial Management, LLC.
The information presented is believed to be factual, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Information in this presentation does not involve the rendering of personalized investment advice. It is limited to the dissemination of general information on products and services. A professional adviser should be consulted before implementing any of the options presented.
Information in this presentation is not an offer to buy or sell, or a solicitation of an offer to buy or sell the securities mentioned herein. Information on this presentation is directed toward U.S. residents only. Signet only transacts business in states where it may legally do so.