Are you confident in your plan for retirement? If you are like the majority of Americans, you are, most likely, still trying to navigate the retirement waters. Many people are not even aware of what is really driving their retirement savings and have little or no control over how their future is invested. The economic climate, stock market volatility, the possibility of inflation, rising costs of education and healthcare… all of these add an additional layer of uncertainty to the mix.
Maybe you are on the other side of the fence… Let’s say you have invested long-term for your retirement. You have a 401(k) that does all the work for you, or you have a fair mix of stocks and bonds in mutual funds. Either way, you may already be doing pretty well for yourself, but the traditional method of investing just seems limited to you.
A successful retirement savings plan involves establishing an appropriate mix of asset allocation, based on the goals you are trying to achieve. One option for consideration includes investment opportunities outside the traditional mutual funds, stocks, and bonds; and includes defensive, income-producing alternative investments. Alternative investments can provide value, while avoiding the volatility of the market, an attractive combination for many retirees.
As your net worth grows, it may be time to consider diversifying your portfolio. Often, the key to maintaining a strong portfolio resides in diversification. A properly diversified portfolio includes different types of stocks and bonds, but also includes alternative assets.
Investing in alternatives isn’t a new strategy. In fact, it has been around since the IRA was created in the 70s. However, it’s popularity in the face of a rapidly changing market has recently risen.
Types of Alternative Investments
Alternative investments are not meant to replace your entire portfolio — they are meant to enhance it. Alternative investments are usually more complex assets that are more difficult to value and sometimes harder to turn into cash.
Another way to view alternative investments is as an extension to your traditional asset counterparts. Young investors seeking to have a more aggressive investment strategy may consider supplementing equity investments, while investors close to retiring and focusing on capital preservation and fixed income could consider purchasing hedge funds in addition to traditional bond allocations.
When considering alternative investments, a few asset types to consider include…
- Private Placement Stocks
- Real Estate, including Real Estate Investment Trusts (REITs)
- Limited Partnerships
- Limited Liability Companies (LLCs)
- Mortgage Notes, Private Notes, Annuity Policies
Some additional examples of alternative investments allowed within self-directed IRAs include commodities (like precious metals), cattle, timber, oil and gas and accounts receivable. The only alternative investments you may not hold within your IRA are life insurance contracts and collectibles.
Benefits of Alternative Investments
The benefit of alternative investments as part of an investor’s diversification strategy is that returns are uncorrelated with traditional investments. Where stocks must weather the ups and downs of the market, alternative investments respond differently. The effects of market fluctuations will still be felt in alternative investments, but often in a more muted way than traditional assets.
If you’re tired of what’s offered by brokers or banks and are looking to truly diversify, alternative investments are an avenue to consider. Their increased non-correlation with the market makes them a staple in a strong investment portfolio.
Investing your self-directed IRA into alternative assets allows you to have direct control over your retirement by investing into areas where you have knowledge, expertise, and comfort.
What draws many investors to alternative investments is the ability to invest in what they know best. For example, farmers can invest in livestock and doctors can invest in medical equipment; there are a great deal of options available. These options are all available to investors looking to increase the return on their retirement investment through a self-directed IRA.
A self-directed IRA custodian like Mainstar Trust, empowers account owners to take total control in making their own investment choices. Mainstar Trust allows you to hold an endless list of alternative investments in your retirement account, which can also include traditional stocks and bonds, all of which helps to promote crucial diversification in your retirement portfolio. Alternative investments even have the potential to build tax-free or tax-deferred wealth in your self-directed IRA.
To learn more about alternative investing in your self-directed IRA