If your retirement plan holds stock, you’re probably aware that your portfolio will take a few hits over your lifetime. Everyone loves bull markets, but you should be prepared for bear markets, too. This article explains how alternative investments can help offset losses when the stocks tumble.
What Investments Are in Your IRA?
Most retirement plans housed with mainstream custodians are invested in traditional assets such as stocks, bonds, and mutual funds. Chances are you never think about how safe your retirement savings are until trouble is brewing. Your broker takes care of that—or so you hope.
Now, we aren’t knocking stocks at all. They have their place in every investment portfolio, including your IRA. If stocks tumble and you’re young enough, over time your account will probably recoup the loss. If you’re closer to retirement age and this happens, you can lose a considerable chunk of stock market earnings, running the risk of not retiring comfortably. This is the reason diversity is essential, and you must consider alternative investments for your IRA.
Diversity Is Essential When Stocks Tumble
The absence of diversity in retirement portfolios fuels the downward spiral when stocks tumble. The reason is simple: If your portfolio is totally invested in Wall Street assets, then you’re totally dependent on Wall Street’s success. This works well in a bull market but can have catastrophic consequences in a bear market. And this is why you should explore alternative investments to the stock market for your IRA and any other investment portfolio.
You won’t become the collateral damage of Wall Street lows if each of your assets are properly positioned to offset the losses of the others.
The strategy of retirement and investment portfolio diversification is to invest in alternative options that react differently in the same conditions. So, if one asset class drops, another asset increases in value or at least holds steady when stocks tumble. Alternative assets help create diversity such as this, a strategic balance that can protect your hard-earned retirement savings and investment income when stocks tumble.
Examples of Popular Alternative Investments to the Stock Market
Real estate investments in an IRA have the potential offset losses when stocks tumble. Right now, the rental property market is hot: rental costs rose 14 percent in 2021 with an expected 11 percent increase in 2022. So, even though the stock market is dipping, owners of single family and multifamily investments are enjoying high returns through the rents they charge tenants.
Private equity investments are historically not really affected by a dive of the Dow, either. In fact, many private equity options outperform public equities and are considered 13 times less likely to suffer a catastrophic loss than stocks.
Private lending investment opportunities may see an increase due to the recent hikes in interest rates. People can lend personal funds, or your IRA can lend funds, and earn income on the interest of the loan. Even if you charge a lower rate than the Fed, you have the potential to earn more than you may on stocks and bonds, without worrying whether or not stocks tumble.
Self-Directed IRA Services Provider for Alternative Investments
Advanta IRA is a leader in our industry, allowing clients to invest in every alternative asset available to self-directed IRAs. With over $2 billion in assets under management, we provide insight and education to individuals who seek diversity in their portfolios. Our clients don’t worry when stocks tumble. They are secure in the investment choices they have made off the market—assets they personally chose; assets they personally know and understand. As we all know, no investment comes with a promise of success. But careful planning and strategic diversity using alternative assets to the stock market can help you reap potential benefits in both bull and bear investment climates.
If you have questions about this article and want to learn more about alternative investments in your self-directed IRA, contact Advanta IRA today.