Different types of investments bring different benefits to investors. Here’s a guide to investing in alternative assets to grow one’s IRA for those who are looking at more-traditional investments.
In this article:
- What Are Alternative Investments | Alternative Investments Definition
- List of Alternative Investments
- Chartered Alternative Investments Analyst (CAIA)
- Not Ready to Buy Alternative Investments Alone?
Other Types of Investments | Alternative Investments to Grow Your IRA
What Are Alternative Investments | Alternative Investments Definition
More people are looking into different types of investments, such as alternative investments to secure their future. Simply saving money isn’t enough to get the best out of your self-directed IRA. These days, you need to get creative with the long-term investment assets you acquire.
Remember that traditional investments aren’t the only way to grow your funds. There are also other types of investments, such as non-traditional or alternative investments that you can look into.
An alternative investment is an asset apart from conventional types such as bonds, stocks, and cash. Institutional investors or high-net-worth individuals own most types of alternative investments.
Putting your money in alternative investments is a wise way to scatter your assets.
The main point of investing is to acquire assets that may potentially result in higher returns. That means there’s no reason for you not to look into non-conventional assets.
Here are some of the top alternative investment examples to venture into.
List of Alternative Investments
1. Real Estate
This is one of the most popular types of alternative investments to include in your IRA. The three types of alternative real estate investments include commercial, residential, and REO properties/REITs.
One way you can utilize this type of alternative asset is to purchase a rental property, like an apartment or a commercial building, and rent it out to tenants. That way, you invest your money in a safe, tangible asset and any money you receive from renting it out counts as profit.
Tip: Remember to seek the help of a licensed real estate broker to ensure that the process goes smoothly. This goes especially for first-time property investors.
2. Precious Metals
Investing in precious metals, like gold and silver, has become one of the best investment strategies a wise investor can make. Aside from being rare and valuable resources, they’re always in demand.
Plus, buying precious metals provides a good safety net in case of inflation. In the event that the dollar collapses or weakens, your precious metals’ value will rise even higher.
3. Hedge Funds
A hedge fund is a type of alternative investment that’s similar to a mutual fund, in that it’s also a pooled fund.
Pooled Funds Definition: A portfolio of funds collected from many investors, which are intended for aggregate investing in various assets. Pooled funds provide better returns to investors by way of lower trading costs and diversification.
But unlike a mutual fund that focuses mostly on publicly-listed stocks, bonds, and other types of traditional investments, a hedge fund can dabble into more “exotic” types of investment options.
These investment options include derivatives, private equity, and other types of ownership investments.
Compared to a mutual fund, hedge funds generally use more aggressive investment strategies, including leverage (debt) and derivatives. As such, hedge funds have registered superior returns to their investors in the last twenty years.
Another key difference between a hedge and a mutual fund is SEC oversight. Hedge funds enjoy less regulation from the SEC compared to mutual funds and other investments.
Because the SEC doesn’t regulate hedge funds as much as mutual funds and because hedge funds use more aggressive investing strategies, they have higher risks than most other investments. As such, only sophisticated or experienced investors bet their money on hedge funds.
Most of the time, hedge funds take the structure of a limited partnership private investment company. Because of this structure, hedge funds limit the number of their accredited investors and require huge initial investments.
Aside from the limited partnership nature, hedge funds tend to limit investors to a select few for liquidity purposes. They often require investors to lock in their money for at least a year because many of their investments aren’t as liquid as publicly-traded ones like stocks.
Because IRAs are long-term investments by nature, investors can consider hedge funds as possible investment alternatives.
4. Private Businesses
The great thing about investing is the fact that you can own a business without having to be the entrepreneur that runs it. That’s because investors have the option of funding private businesses, such as restaurants and cafes.
What makes this type of alternative asset really great are the potential returns. Since you’re investing in a startup, you can buy a share for only a few pennies. That means if the business you invested in does well, your investment can double or triple in the first year alone.
With that in mind, it’s best to invest in a business that you personally know and truly believe in. If you, as a shareholder, do not believe in the business you plan to invest in, then you might want to look at other options.
5. The Internet
Many people hesitate to invest in assets found on the Internet because they’re intangible. However, this is one of the fastest developing alternative investment options.
After all, the digital age has already arrived and is going at an all-time high. Stock prices of companies like Google and Apple continue to rise.
If you invest in them today, you can enjoy the returns as long as they continue to perform as well as they are right now.
Before investing in assets found on the Internet, you should do some research on the companies you plan to buy into.
Do a background check to determine how well they might perform in the years to come. Once you’ve decided, you can purchase stocks, bonds, or futures in the company of your choice.
Cryptocurrencies are virtual/digital money or currencies that utilize cryptography to ensure the security of transactions. Many cryptocurrencies use blockchain technology to conduct and validate transactions in a safe and counterfeit-proof way.
The single biggest feature of cryptocurrencies may be its autonomy from governments and their regulating agencies. For this reason, many privacy-specific investors consider cryptocurrencies as one of their favorite growth investments.
As an alternative investment, cryptocurrencies carry a much higher risk compared to others. But it’s this relatively riskier nature that allows them to provide out-of-this-world returns to their investors.
Consider Bitcoin, the granddaddy of all cryptocurrencies. From just over $65 per token, its price peaked at just over $20,000 per token in December 2017!
Investors with high-risk tolerance can consider adding cryptocurrencies as growth investments in their portfolio.
Lately, a new breed of cryptocurrencies has arrived on the scene. They’re called “stablecoins,” and as the name suggests, they’re cryptocurrencies whose market values are very stable.
While its lack of volatility prevents investors from earning good returns, stablecoins provide another kind of benefit.
In particular, dollar-backed stablecoins can help cryptocurrency investors preserve the dollar values of their traditional cryptocurrency investments. Investors can exchange their traditional cryptocurrencies for dollar-backed stablecoins to keep their dollar values intact when markets start going down.
7. Oil and Gas
While oil and gas prices seem to be going up, this may be one of the best investment alternatives for you. You can invest in items that are oil or gas-based.
Similarly, you can buy stocks or depository receipts from major oil companies. These investments generate a lot of income but can be offset by tax deductions.
Fortunately, through your self-directed IRA, you can get a deferral of income and capital gains taxes and receive tax-free income in your IRA.
Tip: Don’t limit yourself to gas. There are actually tons of other alternative energy investments for you to look into. Companies that produce biofuel, biomass energy, wind energy, and tidal energy are just some of the ones worth checking out.
Also, if you plan to invest in one of these assets, it’s best to buy shares from a company whose cause you believe in. For example, if you want hydroelectric energy companies to progress, then you can do your part by buying shares from a company that produces that type of alternative energy.
8. Promissory Notes
With promissory notes, you are not the one lending money. Rather, your IRA is lending money.
These include title deeds and mortgage notes. Some investors like this type of alternative investment because of the positive cash flow, above average yields, and favorable tax treatment.
9. Farms and Livestock
Now, this may seem like an odd place to invest your money, but farms and livestock are actually a sound and stable investment. Fruits, vegetables, and dairy products are essential. Everybody needs to eat, and somebody needs to fund the people who produce food.
By buying into agriculture and livestock, you’re basically acquiring an asset that has nearly zero chances of going bad. The day people stop eating food is the day you should stop purchasing stock shares in agriculture.
Chartered Alternative Investments Analyst (CAIA)
If you want to learn about the best alternative investments, you might want to sign up for a CAIA curriculum. It’s a professional designation offered to investors who complete their course study and pass their exams.
The CAIA curriculum’s purpose is to educate finance professionals and provide them with a broad base knowledge in alternative investments.
Not Ready to Buy Alternative Investments Alone?
If you feel like you’re not ready to purchase alternative investments alone, don’t worry. For one, you can check out the alternative investments conferences.
It’s a global directory where you can search and learn more about the institutional investors in alternative investing.
If you still need more help with alternative investing, you can opt to seek the help of a licensed brokerage firm. Here are some firms that can help you acquire alternative investment assets:
- Blackrock Alternative Investments
- Vine Alternative Investments
- Secura Alternative Investments
- Blue Sky Alternative Investments
- Mizuho Alternative Investments
These are just a few examples of alternative investments. Your self-directed IRA is very versatile, so you should make the best use of it by buying assets that may give you the best returns.
Overall, the important thing is to find a way your money can work for you. Take charge of your future and the future of your loved ones by making the right decisions today!
Have you tried investing in any of the options from the list mentioned above? How’s your experience? Please share your thoughts in the comments section below.
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Editor’s Note: This post was originally published on February 14, 2018, and has been updated for quality and relevancy.