Alternative Investments in Tough Markets + Self-Directed Investing
Estimated Reading Time: 6 minutes
For the last several months, investing has been a rollercoaster; and one that shows no signs of slowing down. With fluctuating interest rates and market turbulence, it has been a wild ride.
Volatile markets present unique challenges and opportunities when managing your retirement portfolio. How do you choose which investment will help you reach your retirement goals? And what if traditional investments aren’t meeting your needs?
Self directed investing can be a great way for active investors to create options that allow them to diversify their retirement portfolios. But if you have an IRA or a 401(k) at a brokerage, you may not have a lot of choices when the market gets rocky. With a self-directed IRA (SDIRA), however, you can invest in alternative investments as a pathway to a more resilient portfolio.
What are Self-Directed IRAs?
SDIRAs are the same IRAs held at brokerages, but they are available through specialized providers. These providers have the expertise and infrastructure to allow investors to invest in alternative assets. You can self direct both Roth and traditional IRAs. With an SDIRA, investors are responsible for doing due diligence and learning the rules for investing with an IRA. If you are ready to invest outside the box, then an SDIRA might be an option for you to weather this wild market.
Often when people think of investing outside of the market, they think of gold and precious metals. Historically gold has been a go-to investment during market downturns. But alternative investments can be so much more than gold. Let’s take a closer look at them and the potential they can have as part of your investment strategy.
What are Alternative Investments?
Alternative investments are assets outside of traditional investment vehicles like stocks, bonds, and mutual funds. Examples include real estate, precious metals, private equity, private lending, and cryptocurrency, to name a few.
How Do You Invest in Alternative Investments?
Many investors simply purchase alternative assets as a part of their financial portfolio. But if you want to use a tax-advantaged retirement account to invest in alternative investments, you will need to use an IRA or a 401(k). Most traditional brokerages that offer IRAs and 401(k)s do not provide access to investments other than stocks, bonds, and mutual funds. In order to invest in alternative investments with an IRA, investors must open a self-directed account with a self-directed IRA provider.
Why Invest in Alternative Investments?
Alternative investments are outside of most standard, packaged investment strategies. They are not like index funds or mutual funds that are managed, oftentimes by a 3rd party fiduciary. Because they are not a traditional investment, they provide investors with some potential advantages in both fluctuating and stable markets.
Advantages of Alternative Investments
The potential for diversifying a portfolio is one of the biggest reasons investors choose alternative investments. With investment options ranging from bowling alleys to commercial office buildings and cryptocurrency, you have more options to grow your retirement portfolio. The ability to be creative and select assets that can perform well when the rest of the market is in flux is the real power of alternative investments.
Hedge Against Inflation
Stocks and bonds are generally tied to the overall market. Consequently they are greatly impacted by inflation and other geopolitical changes, like disease or war. Because alternative assets are outside of the standard market, they may not always correlate with market offering fluctuations. With an SDIRA, you have the option to choose investments that can serve as a hedge against inflation.
Don’t get stuck investing in a limited set of investments. You are a unique investor with specialized skills and knowledge. As Ben Franklin said, “An investment in knowledge pays the best interest." With self directed investing, you can put your knowledge to work for you. Choose from an almost endless list of alternative investment options and grow your retirement portfolio with assets that are tailored to your strategy.
Capitalize on Market Trends
Even in the most volatile economy, there are opportunities. If, however, your brokerage IRA restricts you to investing in the traditional market, then you may not be positioned to take advantage of those opportunities. The option to invest in alternative assets with a self-directed IRA means that even if the opportunity you find is outside of stocks or bonds, you can invest. Don’t let your limited IRA account options limit you. An SDIRA allows you to capitalize on opportunities that could otherwise pass you by.
Are Alternative Investments Popular?
They are, and they are getting more popular every year. In 2010 the size of the alternative investment market under management was 4.1 trillion dollars. By 2025, the market is forecast to quadruple. For the full story on the growth of alternative assets, check out our recent feature in Chartr.
In a world where investors are well-educated and motivated to maximize their investments, it’s no surprise people are turning to alternative assets. This market provides investors with specialized assets. Savvy investors who are creative and knowledgeable have the potential to increase returns.
Why Doesn’t Everyone Invest in Alternative Assets?
Many people don’t invest in alternative investments because they do not realize they have the option to invest in alternative assets with their retirement account. Often investors want to use these tax-advantaged accounts to grow their retirement savings, and they think their only options are stocks, bonds, and mutual funds. It’s surprising, however, how often we hear, “I never knew I could invest in that in my IRA.”
This is why at Entrust we have been on a mission to educate people about their options for over 40 years. When investors know their options, they are able to make choices that better align with their investment strategy. And alternative assets also widen their options, especially when the market is facing challenges.
We also know that self-directed accounts and alternative investments aren’t for everyone. Many alternative assets are relatively illiquid. For example, if you are looking for an investment you can purchase and sell quickly, real estate and shares in private equity often do not meet that need.
Alternative assets are also unique. Investments other than stocks, bonds, and mutual funds often require investors to be knowledgeable and engaged with the process. This level of interaction when investing isn’t for everyone. But if you like to research your investments and choose assets outside the market, then alternative assets can offer potential to diversify and grow your portfolio.
How to Hold Alternative Investments in Your IRA
In order to invest in alternative assets with your IRA, you must have a self-directed IRA. Opening an SDIRA is about as simple as opening a bank account. At Entrust, we have streamlined the process so that you can open an SDIRA online in about 10 minutes. Once you have opened and funded the account, you can begin investing in alternative assets. It’s really that simple. And remember, with Entrust there are no account minimums.
None of us can control the market right now, but we can control how we invest. And with an SDIRA, you have the choice to invest in almost any asset. We are proud to have been offering investors the option to take charge of their tax-advantaged investments for over 40 years. In good markets and in challenging markets, self directed investing and alternative investment options put the power of directing your future in your hands.
If you’d like to learn more about recent rate hikes and growing inflation, watch our latest webinar How Interest Rates and Inflation Impact Real Estate, featuring Neal Bawa from Grocaptius.