Financial Planners Embracing Alternatives as a Way to Diversify

By Heather Taylor0 Comments

Financial professionals previously set in their recommendation of traditional stock-and-bond portfolios are finally seeing the profit-building potential alternative investments can offer. Financial planner Neil Brown explained in an article for TheState.com that his colleagues are increasingly turning to alternatives to help their clients diversify their investments.

Alternatives, which include real estate, private equity, and oil and gas, provide a different means of investing from traditional investments because their success is more dependent on an investor’s specialty or skill, and less dependent on factors out of the investor’s control, such as national and world events.

In addition, divvying your funds among investments other than stocks can bring true diversity to a portfolio, according to Brown.

An alternative investment may prove beneficial due to its lack of correlation with other types of investments. Part of sound portfolio management is diversifying investments so that if one type of investment is performing poorly, another may be doing well. Via this smoothing, an investor may see increased, or at least more stabilized returns.

Self-directed IRAs allow you to invest in many of the alternatives Brown listed while building your retirement. According to IRS rules, however, some of the alternatives that were mentioned – including antiques and art – are off-limits for self-directed IRA investing.

The article also points out that fees associated with alternative investing can be higher than what you would pay for investments such as mutual funds. Alternative investments made within a self-directed IRA require a special type of custodian and its own set of paperwork and reporting, so the fees reflect those necessary extra steps.

Not all self-directed IRA custodians are alike when it comes to fees, though. Some providers charge investors per transaction. Others, such as Equity Trust, charge a fair, straightforward, all-inclusive annual fee and don’t add charges each time an investment is made.

As Brown said, alternatives offer investors the opportunity to grow their wealth using their expertise. It’s up to you as the investor to decide if the portfolio diversity and potential stability is worth paying a little more than you would for traditional investments.

Find out for yourself about your wealth-building potential with alternative investments: Schedule a free IRA checkup with an Equity Trust Senior Account Executive and get all your questions answered.