4 Investment Trends to Help You Diversify Your Portfolio
Estimated reading time: 3 minutes
A hundred years ago, we had the Roaring Twenties. Characterized by a surging economy and booming stock market, companies were innovating fast to meet the pent up demand caused by the Spanish Flu and World War I.
In 2021, we’re seeing something similar. Investors and consumers alike are setting fresh new trends that have the potential to alter the course of history and society for another 100 years.
With a self-directed IRA (SDIRA), you have an edge to seize these opportunities. A few trends that are becoming increasingly popular among SDIRA-holders include cryptocurrency, self-storage, ESG, and community investing. Keep reading to learn more about each type of investment.
Cryptocurrencies are digital or virtual currencies secured by cryptography, making them almost impossible to counterfeit or double-spend.
Rather than being issued by a government or a central bank, cryptocurrencies are “mined” on decentralized computer networks. These computer databases are linked together using blockchain technology. This separation from any central authority means they exist outside of the realm of traditional governmental monetary policy.
Another feature that differentiates cryptocurrencies is market capitalization, or market cap.
In the realm of traditional company stocks, this is the total dollar value of a company’s stock. This amount is found by multiplying the current price of a single market share by the number of their outstanding stock.
In the world of crypto, this equation multiplies the total number of coins mined by the price of a single coin at any given time. Typically, the higher this number is, the more stable the investment is.
For prospective investors, understanding market cap is crucial because coins with a larger market cap are more likely to be a stable investment. However, crypto can be unpredictable. While more stores in the U.S. are starting to accept crypto as payment, occurrences like Elon Musk’s recent media splash and the Chinese government cracking down on cryptos impact this market. It’s clear that volatility may be the only constant (for now).
Regardless of what the future of cryptocurrency may hold, it’s an investment you can make using a self-directed IRA (SDIRA) today. Want to know more? Learn the basics of investing in cryptocurrencies with a SDIRA.
2. Self Storage
Nearly 10% of U.S. households rent a self-storage unit, paying an average monthly rent of nearly $90. It doesn’t stop with individuals though; an increasing number of businesses are turning to self-storage as part of their transition to a more remote work environment. This jump in demand is contributing to greater interest among investors and better odds for a positive ROI.
Bonuses of Self-Storage Investment
Another benefit associated with self-storage facilities is that they are relatively low-maintenance: no leaking faucets or noisy tenants here. This allows more of a hands-off approach, giving you more time to focus elsewhere. Plus, owners can add on revenue-generating products and services like selling locks, packing boxes, and dust covers.
You can purchase a self-storage facility outright, partner with others, or buy shares in a REIT that specializes in the industry. Learn more about your options for investing in self-storage using your SDIRA in our webinar on the topic.
3. ESG Investments
Interested in altruistic investments? An ESG investment may be the perfect option. ESG is an acronym for environmental, social, and governance. Focused on ethical and sustainable practices, ESG investments are evaluated on these three factors in tandem with their potential for return. In short, the objective is to do good while making good returns.
Once overlooked by traditional financial institutions, ESG investments are now mainstream. They’re currently on track to reach $53 trillion by 2025, according to Bloomberg Intelligence.
ESG Investing Myths
Contrary to misconceptions that sustainable investments are less profitable, a study by Morgan Stanley showed that sustainable funds actually outperformed traditional, non-ESG funds in 2020 by providing higher returns. These sustainable investments also proved to be less risky. The study pointed out that the 2020 data was consistent with their findings from 2019 as well.
Investing in ESG offerings can help investors avoid companies whose practices might pose financial risk. For example, oil spills caused steep losses for ExxonMobil and BP; and their investors. However, even ESG investments have risk, so don’t be fooled into thinking they’re exempt. As is true of all investments: due diligence is critical.
Learn more about ESG investing in our recent webinar, Making the Business Case For Renewable Energy Investments.
4. Community Investing
The mantra “think global, act local” has a new counterpart: “invest local.” Community investing (CI) lets you invest in areas that matter to you, such as your hometown or an underserved community. You can direct these investments to support safe and affordable housing, job opportunities, education, healthcare, financial services, and more.
How to Invest Locally
One way to do so is via community development financial institutions (CDFI). These FDIC-insured private institutions serve low and moderate income clients; oftentimes in areas that more traditional commercial banks overlook. CDFIs receive most of their funding from three key sources: the federal government, banks, and institutional investors. The most common way to invest in CDFIs as an individual is through a community development loan fund. This can be an incredibly impactful way to help at-risk communities while also diversifying your portfolio.
Purchasing agency and municipal bonds are two more popular options for supporting community development. Bonds issued by federal agencies like Ginnie Mae, Fannie Mae, and Freddie Mac all support home ownership. Municipal bonds typically support local schools and infrastructure projects. FINRA (Financial Industry Regulatory Authority) publishes guidance on buying bonds in a self-managed account.
You can even get more hands-on with your community investing through real estate. Investing in local property can allow you to revitalize neighborhoods with low-income housing or new spaces for small businesses to thrive.
Self-Direction is Trending
As the investment world changes, it’s more important than ever to keep up with new ways to secure your financial future. Gone are the days where you could plan to retire on a company-funded pension or social security alone. Even those with employer-sponsored plans are feeling the pinch with stock market volatility and rising inflation. Now, a growing number of people are choosing to take control and diversify their portfolios with alternative assets using a self-directed IRA.
At Entrust alone, over 45,000 people have created a more secure future with a little help from their SDIRAs. Curious how they’ve done it? Check out Entrust Connect, our online investment marketplace, for a look into just one of the ways SDIRA-holders can find investments to diversify their portfolios.
Entrust does not promote any investments. Rather, Entrust provides the administration, information, and tools to make self-direction straightforward and compliant. We help you get started quickly and stay with you every step of the way.