Exploring Interval Funds: A New Player in Retirement Investing

Investors looking for alternatives to traditional index funds and stock-bond portfolios are turning their attention to interval funds, a new player in the retirement investing landscape. These funds provide regular investors access to investments typically reserved for financial institutions and the ultra-wealthy, such as venture capital, private credit, and private equity.

According to Morningstar, interval funds have been gaining popularity since the 2008 financial crisis, with total assets under management growing almost 40% per year over the past decade to $80 billion through May 2024. This growth is attributed to near- and current retirees seeking higher returns than what public markets alone can offer.

Interval funds offer investors the opportunity to invest in illiquid assets like private real estate and private equity, potentially yielding higher returns than traditional mutual funds. However, these funds come with drawbacks, including limited liquidity. Investors can buy into interval funds daily but can only redeem their shares on a quarterly basis, making them best suited for long-term investments.

Despite their growing popularity, interval funds may not be suitable for all investors. Morningstar’s Brian Moriarty advises that investors should have a sophisticated understanding of these funds and their use cases before investing. While interval funds can enhance portfolio returns, they may not be necessary for investors solely seeking amplified returns.

Overall, interval funds offer a unique investment opportunity for those looking to diversify their portfolios beyond traditional assets. As more asset managers enter the space, investors may increasingly consider adding interval funds to their investment strategy. However, it’s essential to weigh the benefits and drawbacks of these funds before making any investment decisions.