In today’s issue:

• Weekly Wisdom - From The Richest Man in Babylon…

• Quick Reads - 10 year treasury surging, rents flat…

• Market Minute - Markets shake it off…

• Deep Dive - How one reader can create an income in retirement…

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WEEKLY WISDOM

QUICK READS

📈 Markets Kick Off 2025 with a Jolt…

Global markets started 2025 with a mixed bag as Asian stocks slid, oil prices steadied, and U.S. Treasury yields climbed. The focus is now on China’s economic recovery and upcoming Fed minutes to guide investor sentiment. If you’re navigating this volatile start, here’s what you need to know to stay ahead.

🚧 Infrastructure: A $100 Trillion Play…

Global infrastructure investment is expected to exceed $100 trillion by 2040, driven by aging systems and rising urbanization. This sector offers a unique opportunity for steady, long-term returns, often with inflation-protected cash flows. If you're looking to diversify and cash in on essential projects like bridges, roads, and broadband, now's the time to get informed.

🌆 Manhattan's Luxury Market Rebounds…

Manhattan’s luxury real estate market saw a surge in activity in Q4, with buyers stepping off the sidelines to capitalize on softened prices and prime inventory. Sales in the $4 million-plus segment rose, signaling renewed confidence among high-net-worth individuals. If you’re tracking the pulse of elite property markets, this is a must-read…

MARKET MINUTE

Markets Shake Off Holiday Doldrums…

The markets are buzzing as we kick off the new year. Here’s what’s happening

• Oil Breaks Free: Crude oil finally smashed out of the range it’s been stuck in since September 2024, signaling potential for a fresh trend. WTI is now above $73 per barrel, but can it sustain the momentum?

• S&P Surge: The S&P 500 spiked on Friday after the New Year’s holiday, up 1.23%, fueled by optimism heading into January. Whether it holds up or fizzles out remains to be seen.

• Crypto Clings to Support: Bitcoin and Ethereum climbed back above key support levels ($97k for Bitcoin, $3,500 for Ethereum). Will they build on this strength, or are we looking at another slow bleed before a 🚀🚀🚀 like last year?

Markets are moving fast…

Forward this to a friend to help them keep up!

DEEP DIVE

When the Markets Scare You, Think Like a Lender

Why Sam Turned to Private Credit to Secure His Retirement to Earn 8-12% Through Private Credit Without the Stock Market’s Whiplash

The stock market has been on a historic run, reaching record highs over the past decade.

But what happens next?

Many experts are concerned about the possibility of stagflation — where inflation persists while economic growth stagnates.

If that happens, the next ten years might not look as rosy for stock market investors.

So, what can you do?

Enter private credit… a way to achieve market-level returns with potentially less risk.

Sam’s Story…

Meet Sam, a recent retiree and Shrewd Investor reader.

He did well in the stock market over the past decade, but is now looking for steady income to cover living expenses.

With the markets at all-time highs, Sam worries they might flatten or decline in the coming years.

And bonds offering 4-5% aren’t enough to meet his goals.

When his advisor suggested private credit, Sam had questions:

• “What exactly is it?”

• “Is it safe?”

• “How does it fit into my portfolio?”

What Is Private Credit?

Private credit involves lending money directly to businesses or projects that traditional banks won’t finance.

This type of investment allows you to become the lender, collecting high-interest payments in return.

Unlike public stocks and bonds, private credit investments are not traded on exchanges, making them less volatile and often more stable.

Here’s why private credit has gained popularity:

• High Yield: Investors can earn 8-12% annual returns, significantly more than traditional fixed-income investments.

• Non-Correlation: Private credit returns are less tied to the ups and downs of the stock market.

• Steady Income: Many private credit investments pay regular income, which can help retirees or those looking for reliable cash flow.

How Private Credit Fits into a Portfolio

For Sam and millions of others, private credit offers a way to achieve growth and income without being tied to the stock market’s whims. It’s an investment class that provides:

• Stability in Uncertain Markets: Income from private credit is often contractual and paid monthly or quarterly.

• Interest Rate Resilience: Many loans in private credit funds have floating rates that rise with with 10-year treasury bond.

• Diversification: By lending to private companies, investors can access opportunities not available in public markets.

Three Ways to Invest in Private Credit

1. Publicly Traded Business Development Companies (BDCs)

Firms like Golub Capital BDC Inc (GBDC) and Blue Owl Capital Corp (OBDC) operate as publicly traded private credit funds.

These companies lend to middle-market businesses and distribute most of their income to shareholders, often yielding 11-12% annually.

Why Choose BDCs?

• Liquidity: Buy or sell shares anytime on the stock exchange.

• Transparency: Public filings make it easy to understand their portfolios.

• Accessibility: Lower minimum investments compared to private funds.

Considerations:

• BDC stock prices can fluctuate with market sentiment, even if the underlying loans perform well.

• Dividends are taxed as ordinary income after the return of capital is depleted.

2. Private Credit Funds

Private credit funds pool money from accredited investors to lend directly to private companies.

These funds often lock up capital for 5-10 years but offer higher yields and reduced correlation to market volatility.

Why Choose Private Funds?

• Higher Yields: Managers can focus on long-term, high-return opportunities.

• Customization: Investors may negotiate terms such as interest rates or covenants.

• Market Insulation: Because they’re not publicly traded, their values don’t swing with the stock market.

Considerations:

• Requires accreditation and a longer investment horizon.

• Typically less liquid than BDCs.

3. Originate Private Credit Yourself

For investors with substantial portfolios, connections, and expertise, originating private credit directly can provide the highest level of control and returns.

This involves lending money to businesses or projects on your own terms.

Why Originate Private Credit?

• Customizable Terms: You set the interest rates, repayment schedules, and protective covenants.

• Higher Potential Returns: Cutting out intermediaries can increase yield.

• Direct Relationships: Build trust and repeat opportunities with borrowers.

Challenges:

• Requires significant due diligence to evaluate borrowers’ creditworthiness.

• Demands active management to monitor loans and enforce covenants.

• Risk of concentrated exposure if a borrower defaults.

Why Now Is a Good Time for Private Credit

With inflation on the rise and interest rates fluctuating, private credit offers unique advantages:

• Floating Rate Loans: Many private credit loans adjust rates higher as interest rates rise, protecting your returns.

• Inflation Pass-Through: As businesses increase revenues to match inflation, they’re better positioned to repay loans.

Benefits of Private Credit

• High yield (8-12%)

• Steady income, often paid monthly or quarterly

• Diversified portfolios of private loans

• Inflation protection through floating rates

Risks to Consider

• Lending to private companies carries higher risk than government or corporate bonds.

• Default risk: If a company fails, investors may lose principal.

• Illiquidity: Funds and direct loans often lock up your capital for years.

• Tax implications: Income may be taxed as ordinary income.

Thinking Like a Lender Could Pay Off Big…

Sam’s journey into private credit taught him a valuable lesson: thinking like a lender can open doors to steady income and financial peace of mind.

Whether you’re drawn to the liquidity of BDCs, the tailored approach of private credit funds, or the hands-on control of originating your own loans, private credit offers a pathway to grow your wealth outside the volatility of the stock market.

The content provided in this newsletter is for informational purposes only and should not be considered as specific advice for any specific individual. The information is prepared by knowledgeable individuals and is not written by certified tax professionals or investment advisors. For personalized advice tailored to your unique financial situation, consult with a qualified tax professional, financial advisor, or attorney.

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