By investing with your self-directed IRA, you are continuously growing your retirement funds and setting yourself up for future financial freedom. But what if you could go beyond your portfolio’s traditional investments and try something new? Through alternative assets, you can broaden your investing horizons to enjoy an array of benefits.

What Are Alternative Assets?

An alternative asset is a different investment option an IRA investor may choose compared to traditional investments, such as stocks and bonds. While a traditional investment is most often publically traded, alternative assets are private investments. These assets include but are not limited to real estate, hedge funds, cryptocurrency and precious metals. They typically require longer holding periods because of their low liquidity.

Advantages and Disadvantages of Alternative Investments

If you have an IRA, you may be curious about expanding your investments beyond traditional assets. You might want to branch out for many reasons, especially as some Americans have lost faith in Wall Street. At the same time, you should note the potential downsides of alternative investments to make the most informed decision.

Here are the benefits of alternative investments:

1. Portfolio diversification: When you have a diverse investment portfolio, your assets are less correlated, meaning they do not all move up or down at once. Further, holding a portfolio with various unique investments means you avoid the age-old issue of putting all of your eggs in one basket, or all of your money in one kind of asset. Spreading your investments across different options, even just a little bit, could be extremely beneficial.
2. No connection to the stock market: Similar to the above point, investing in alternative assets with your IRA means your money is not fully reliant on the stock market. While the stock market remains a tried and true method of investing, falling market indexes in 2022 have left some investors wary of Wall Street. If you are such an investor, alternative assets could be a strong option for you.
3. Increased tangibility: Unlike traditional assets, which are arbitrary, alternative investments can be assets you can physically see and touch. For example, real estate investors can visit the properties they have invested in. This level of tangibility can play a significant role in an investor’s confidence in their portfolio.
4. Higher volatility: Though volatility can be detrimental — more on that below — it can also bring investors substantial returns. A considerable benefit of traditional assets is they are reliable, moving slowly with market protections to ensure huge downswings do not occur. Comparatively, alternative assets like cryptocurrency do not have the same protections, and they are inherently volatile. This volatility can work in the favor of investors in certain situations, earning them massive returns — just look at Bitcoin, which jumped from around $900 to $20,000 in one year.
5. Possibly more interesting: One other advantage is alternative assets can be more interesting and exciting to invest in. Depending on the goals and interests of an investor, alternative investments may provide them with a more fulfilling experience. Putting their money into collecting gold or flipping houses can be more enjoyable than a stock or bond.

While you consider the upsides to alternative assets for your IRA, you should not ignore the possible disadvantages:

1. Possible greater tax responsibility: Based on the alternative assets you choose, you may increase your tax responsibility. If you invest in properties in different states, you must file a state tax return for each one. As a partner or shareholder, you must file a Form K-1 for each relevant investment. Failing to do so means you will be subject to tax penalties.
2. Potentially more fees: One key benefit of traditional assets is their fee transparency. When you invest in something like a mutual fund, you know exactly what to expect regarding fees. This aspect is not always true for alternative assets — it may not be immediately clear how much you will need to pay to complete a transaction on a certain platform. Those fees might add up to more than you expect.
3. Higher volatility: While high volatility can equal big returns, it can also cause massive losses. With an asset like cryptocurrency, which is only worth what people say it is, something as simple as a popular figure commenting on it can derail its value. This means investors should be as prepared to lose money as they are to make it.
4. Less cost transparency: Again, the attractiveness of traditional assets like stocks and bonds is they are consistent and accessible. In seconds, you can research the price of a stock and know what to do next. That is not always the case for an alternative asset. If you want to buy a piece of property as an investment, you have to do copious research to ensure you are paying a good price for it and buyers in the future will value it at an even higher price.

Ultimately, the best way to see whether alternative investments will fit into your investing strategy is to speak with an expert retirement account advisor. While you have full control over your self-directed IRA, learning about new investment opportunities from a professional is always beneficial. As a result, you can make an informed decision for your future.

Why Should You Consider Alternative Assets?

Considering their many advantages, an alternative investment can be a significant opportunity for self-directed IRA holders. Thanks to tax deferral, you can enjoy tax-free gains added to your retirement account after selling an alternative investment. By diversifying your portfolio and investing beyond traditional assets, you can potentially increase your chances of saving for retirement more quickly.

Beyond diversification and expanding your portfolio away from Wall Street, investing in alternative assets can help ignite a passion for investing. Whether you enjoy funding startups, renovating houses, or purchasing gold or silver, you can do all of that and benefit your retirement account at the same time through alternative investments. This option can make investing more exciting and interesting for you — it does not have to be just saving for retirement.

Depending on your plans as an investor, alternative assets are likely worth considering so you can take advantage of their benefits.

Open an Account to Start Investing in Alternative Assets

Talking with a self-directed IRA expert can help you further understand why you should invest in alternative assets and do your retirement your way. Accuplan is here to guide you through the possibilities of alternative investments. For decades, we have assisted customers in Arizona, California, Nevada and Utah with their self-directed IRA needs.

With our extensive expertise in self-directed IRA alternative investments, you can rest assured that we offer the right advice and correctly answer your most complex questions about investing. If you are interested in growing your portfolio, we are always here to help as a trusted alternative asset IRA custodian. Call us at 1-800-454-2649 to get in touch or open an account online.

Our content should not be relied on for investment advice but simply for informational or educational purposes only. Our information is not meant to provide, nor should it be depended on for advice regarding investment, tax, legal or accounting concerns.