[Webinar] The Case for Holding Alternative Investments in Retirement Accounts
“Something that Wall Street really doesn’t want you to know about.”
Holding alternative investments in your retirement account? This is supposedly “something that Wall Street really doesn’t want you to know about.” From the flexibility to the wide variety of investment vehicles to the unparalleled high returns, these alternatives have been a best kept secret in the investing world until just the past few years.
Excelsior’s VP of Development, Jonathan Leiter, recently hosted James O’Brien, VP of Partnerships at AltoIRA, in our ongoing webinar series to highlight a lesser known investment vehicle, retirement accounts. Previously, investing in alternatives through an IRA was “disproportionately expensive and insanely time-consuming,” O’Brien explained, and AltoIRA was born to solve this problem. It is an industry-leading investment platform that offers individuals a simple interface to set up, invest in, and manage a diversified portfolio of alternative assets using their IRA dollars.
The Traditional Route
The traditional way to save for retirement has always been to open an IRA and make regular contributions to it, hoping that you’ll amass a significant amount by the time you reach retirement age. Unfortunately, these results don’t always meet expectations when you’re limited by the number and type of investment options available.
The two most common types are traditional IRAs and Roth IRAs:
- Traditional IRAs allow you to contribute a maximum of $6000 per year, and these contributions can be written off against your current income for tax purposes. Returns also remain within the account without being taxed. As you begin to make withdrawals (after the age of 59.5), however, you are taxed at the current rate of your income bracket.
- Roth IRAs also allow you to contribute a maximum of $6000 per year, but these contributions cannot be written off against your income. While there is no tax benefit on the way into the account, you are not taxed on the compounded returns or withdrawals once you begin to take money out (again, after the age of 59.5).
The Changing IRA Market
O’Brien explained that while these methods used to be “safe wisdom,” the markets have been impacted by trends in individual lifestyle choices, like spending less time at a workplace and taking more opportunistic risks. Leiter also commented that “the return structure of the public markets has changed drastically in the last 10 to 20 years,” with statistics showing that the most successful long-term investments are in the private market. As a result, the number of alternatives available is quickly growing.
For far too long, the “smart money,” as Leiter termed it, has thought that the tried and true method of investment was the only guaranteed way to reach success. Finally, a shift in the industry has begun to take place. O’Brien explained that AltoIRA has seen a significant number of accredited investors begin to liquidate and transfer their public portfolio (anywhere from 10-30%) into their alternative options, and this is still just the tipping point for these unique investment vehicles.
The Rise of the SDIRA
The beauty of the Self-Directed IRA is that it offers “an open architecture for what makes the best sense for you,” including many alternatives to choose from. And why have these become so popular just recently? Well, O’Brien confided that most people had no idea they could even save for retirement in this way, but, as they’ve caught on, the market has opened up more and more. One advantage of this investment method is that it doesn’t require that you have a personal network to find deal flows. Rather, you can use online platforms, like AltoIRA, to easily find high quality deals yourself.
There are more alternative asset options for IRAs available now than the market has ever seen before. O’Brien shared some of the most popular types and their respective advantages:
Real Estate: It is consistent, trusted, has a positive track record, and typically yields steady cash.
Startup Venture Capital: You’re able to easily build a portfolio across any range of industries.
Pre-IPO Venture Capital: Because these businesses are established and trusted by this point, value is expected to increase exponentially once they hit the public market.
Cryptocurrency: While it’s more of a niche category, this can be purchased directly and even has hedge potential.
Hedge Funds: These are managed products, so you don’t have to keep track of the volatile markets yourself.
As the market continues to develop and new niche categories emerge over time, investing, in means of both volume and variety, has only become more convenient and accessible. Online platforms like AltoIRA streamline the process, provide excellent customer service, and set up investors for success, regardless of the amount being invested. If you’re considering alternatives for your retirement account, we couldn’t recommend their services more.
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