Don’t Just Invest; Invest in What You Love
Are you an aspiring venture capitalist, crypto investor, or someone who knows everything about fine art? You might be surprised to learn you can include these and other alternative investments in your retirement portfolio.
Whether it’s shares in that hip startup you’ve been following, a crypto token you believe will help build the metaverse, or the work of an artist you admire, you can leverage your personal knowledge when investing for your future.
Research shows broad interest in alternative investing options: Alto’s 2022 Alternative Investing Report revealed that 72% of millennials would contribute more to their IRA each year if they could invest in alternative investments.
Seeking opportunities for portfolio diversification not provided by conventional retirement plans, many investors are turning to self-directed IRAs. These IRAs provide the same tax advantages as you’d expect from traditional and Roth IRAs. But unlike many legacy options, self-directed IRAs enable you to invest in alternative assets.
Your Knowledge, Your Future
Confronted with high inflation, increasingly volatile markets, and the very real prospect of low public market returns over the next decade, investors have little confidence in traditional investment options. Alto’s research found that 76% of millennials worry a market crash could wipe out their investments. What’s more, 60% believe that unless you are a professional investor, it’s hard to be successful in the stock market.
76% of millennials worry a market crash could wipe out their investments.
Beyond recent market performance and diminishing investor confidence, the underperformance of mutual funds also establishes a strong incentive for taking charge of your portfolio.
Last year, the benchmark S&P 500 notched up gains of just under 29%. Unfortunately, that stellar performance was not mirrored by fund managers. A whopping 85% of U.S. large-cap stock-picking mutual funds underperformed the index during the same period according to S&P Dow Jones Indices, in what was a particularly weak performance.
This year and the next look to be an all-together different investment proposition amid the distinct possibility of a recession.
Conventional retirement portfolios are typically based on a decades-old 60/40 split between stocks and bonds. That model suddenly looks out of step with the extraordinary changes sweeping through financial markets. Despite long-standing use, it’s clear the 60/40 model may not offer sufficient protection against inflation and market volatility when investing for the future.
Beyond offering insufficient returns, the 60/40 portfolio split is plainly unappealing for investors of all ages. Alto’s research uncovered overwhelming interest in alternatives, with majorities of each generation saying they’d like to learn more:
- 85% of millennials
- 81% of Gen Xers
- 70% of boomers
Further, 89% of millennials said they were likely to invest in alternatives.
Until recently, however, alternative investments, such as venture capital funds, were reserved for the ultra-wealthy.
Today, regulatory reforms, innovations in tech, and the rise of fractional ownership have opened the door for retail investors who want to diversify their portfolios — providing access to assets that have historically been prohibitively expensive and inaccessible for the majority of investors.
Investing in alternatives using a self-directed IRA is a great way to diversify and balance risk in your portfolio. For example, fine art investments are among the least correlated assets with stocks. Meanwhile, digital assets like Bitcoin and Ethereum have outperformed conventional markets over the past decade with financial institutions increasingly embracing blockchain technology, crypto, and Web3.
Self-Directed IRAs Are Opening the Door to Investing in Alternatives
Self-directed IRAs offer flexibility to make important decisions about your portfolio, and provide the same tax advantages as a traditional IRA (tax-deferred) or Roth IRA (tax-free distributions).
Although that may feel liberating, it is important to do your due diligence when evaluating potential investments since alternative investments, like stocks, carry risk. It is also important to select your custodian carefully. Choose one that provides access to investments that best reflect your knowledge and interests to maximize the benefit of your self-directed IRA.
The best mix of alternatives will, of course, come down to personal preference. Combining your knowledge and passions with a diligent and thoughtful approach can lead to strong returns.
Most of all, if you’re uncertain about your financial future, you’re not alone: Our research found that more than half of millennials are worried they’ll never be able to retire. Even Gen Xers harbor concerns, with 52% concerned they won’t be able to retire at their desired age.
Self-directed IRAs and alternative investment strategies can help you regain control of your financial destiny by enabling you to invest in what you know and love, and in doing so feel confident about the direction you’re headed in.
