IRA Financial Blog

Why Alternative Assets Are Growing in Popularity

alternative assets growing popular

Key Points
  • Market volatility has more investors turning to alternative assets, such as real estate and precious metals. 
  • A Self-Directed IRA permits investors to purchase alternative and nontraditional investments. 
  • When purchasing alternative assets, it’s important to be aware of the IRS prohibited transaction rules.

More and more retirement investors are diversifying their retirement portfolio with alternative assets, also known as nontraditional assets, in place of stocks. This recent trend is fueled by fears of a U.S. recession, the Trump impeachment and the ongoing U.S.-China trade talks. Retirement investors realize that by purchasing alternative assets, like real estate, they can better protect themselves from stock market volatility. And it doesn’t look like investors will return to making solely traditional investments any time soon – or ever again.

IRA holders have always been able to purchase alternative assets with retirement funds. Alternative assets include real estate, cryptocurrency, private business/placements, and precious metals. However, this fact isn’t well-known because most IRAs are established at banks and financial institutions that do not sell alternative investments. As a result, they limit what the investor can purchase to the financial products they sell, including stocks, bonds, mutual funds, etc.

By establishing a Self-Directed IRA with a passive custodian, like IRA Financial Trust, retirement investors have the freedom to make both alternative and traditional investments.

Alternative Assets Growing in Popularity

These days, if you speak to almost any financial advisor, he or she will explain the benefits of retirement portfolio diversity. In other words, using your retirement funds to invest in assets that have little to no correlation with one another. Before the 2008 financial market crash, very few retirement investors knew about self-directing. After many investors lost much of the retirement wealth in 2008, they began to discover the benefits of self-directing their IRAs. Due to today’s market volatility, investors are self-directing for the sole purpose of purchasing alternative investments.

Why Purchase Alternative Assets with a Passive Custodian?

As previously stated, most IRAs and 401(k) plans were established with banks and financial institutions. This is a fact even today. However, financial institutions and banks only sell their financial products. As a result, if you want to purchase an asset such as cryptocurrency, you wouldn’t be able to do so with a Traditional IRA established at your local bank.

A passive or, Self-Directed IRA custodian, on the other hand, is responsible for administering self-directed retirement accounts, such as the Self-Directed IRA. Passive custodians are not in the business of selling financial products or offering financial advice, therefore, you can make any IRS approved investment you wish to make.

IRS Prohibited Transaction Rules

When making alternative asset investments with your Self-Directed account, always keep in mind of the prohibited transaction rules. There are certain assets you cannot purchase with your retirement funds, and certain people/entities you cannot transact with. If you fail to comply with the IRS rules, you will face steep penalties and the possible disqualification of your IRA or 401(k).

Benefits of Alternative Asset Investments

Alternative assets are growing in popularity primarily due to their benefits. The primary benefit when purchasing alternative assets is investment diversification. Diversifying your assets mitigates potential risk, for example, if your hedge fund investments are performing poorly, perhaps your real estate investment is sky rocketing.

Below are a few key benefits of using retirement funds to buy alternative assets:

You Understand the Investment: Not everyone understands what transpires within Wall Street, but perhaps know a great deal about real estate. Even Millennials who are beginning to use retirement funds to invest prefer cryptocurrency to stocks. Buying alternative assets allow you to invest in what you understand, thus you make investments more confidently.

You Gain More Control: With a Self-Directed IRA, you can establish “checkbook control” and make investments without custodian consent. You will be the manager of the IRA and have direct access to the funds in your IRA LLC bank account. Thus, making an investment is as simple as writing a check or wiring funds from your bank account. Now, you can even invest with the IRA Financial app.

Retirement Portfolio Diversification: Again, buying alternative assets leads to retirement diversity. As a retirement investor, you cannot afford not to diversify your investment, as this will better secure your assets.


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