How Alternative Assets Can Help You Weather Market Volatility 

Geopolitical uncertainty, like the conflict involving Iran, can have far-reaching negative impacts, one of them being your retirement livelihood. These global events can influence financial markets in unpredictable ways, creating ripple effects that extend well beyond the regions directly involved.

With market volatility, changing energy prices, and uncertain investor sentiment, especially among Americans nearing retirement age, you may be wondering about ways you can help protect your retirement from downturns. Here are a few options to consider.

Ways to Prepare for Market Volatility

Review Portfolio Diversification

Some assets, like stocks, rise and fall with the market, making them potentially more volatile than others. Other assets, like real estate, have less market correlation and may rise and fall at different rates and in response to different factors. Because different asset types respond to economic conditions in unique ways, having exposure to a variety of investments can help balance overall portfolio performance over time.

This is why diversifying your portfolio can be beneficial. Maintaining a mix of traditional and alternative assets means that your portfolio is less likely to be affected by a single asset dropping in value, because others may be either increasing or staying steady. This can help reduce the impact of any one asset’s performance on your overall portfolio as well as preserve wealth and peace of mind during market volatility. A diversified portfolio may also provide more flexibility, allowing investors to adjust their approach as market conditions change.

Evaluate Risk Tolerance

Not all investments have the same level of risk or the same level of reward. Some assets can help you generate higher returns in a short period of time, but they also come with the risk of losing a significant portion of your initial investment. Others have less risk, but their growth may be more suited to preserving wealth rather than building it. Many investors choose a mix of these investments based on their own risk tolerance.

You should consistently evaluate your portfolio allocation and review with a tax professional so you can make adjustments as your risk tolerance changes. If you want to focus more on wealth building and have more time to make up any losses, you may have a higher percentage of high-risk, high-reward assets. However, as you near retirement age and prefer to preserve the wealth you’ve already built, you may want more assets that allow you to do that. This can be important in times of unrest, when market conditions can shift quickly and unexpectedly, making it important to ensure your portfolio still aligns with your financial goals and comfort level.

Maintain Short-Term Liquidity

Ensuring funds are available for near-term needs can help reduce the pressure to sell during downturns. Short-term liquidity improves stability, provides a buffer against downturns, and prepares you for any unforeseen emergencies.

During periods of market volatility, having access to liquid funds may allow you to cover expenses, take advantage of new opportunities, or avoid making reactive decisions based on short-term market movements. Without adequate liquidity, investors may feel compelled to sell long-term assets at unfavorable times, which can impact overall portfolio performance.

Types of Alternative Assets for Diversification

Real Estate

Investing in real estate is not tied to the stock market, whether you renovate a fix-and-flip or keep a long-term tenant. Real estate gives investors a way to leverage their expertise while potentially generating income through rent or property appreciation over time. Additionally, real estate investments may respond differently to economic trends than publicly traded assets, offering another layer of diversification.

Private Equity

When you invest in private equity, you’re able to gain exposure to businesses outside of public markets. Investing in privately traded companies can enable you to take on a more active shareholder role in a company that aligns with your values. These investments may also provide access to a broader range of opportunities that are not available on public exchanges, allowing investors to participate in different stages of business growth.

Precious Metals

Gold, silver, and other metals are sometimes explored by investors specifically during economic or geopolitical uncertainty, as they’re not tied to the public market performance and are considered by many investors to be a “haven” investment during times of market turbulence. Precious metals have long been an option for diversified portfolios as a way to add balance during periods of economic change.

Cryptocurrency

Digital currency has may serve as a hedge against inflation, as many cryptocurrencies have capped supplies. Cryptocurrency can also be accessed and traded 24/7, making it an accessible asset to generate passive income. Its accessibility and evolving use cases continue to attract investors looking to explore emerging areas of the financial landscape.

Private Lending

Promissory notes are another type of “hands-off” investment, with you originating a loan from your IRA and gaining interest over time. You have the flexibility to set your own payment terms while providing funding for real estate investors, business owners, community projects, and more, giving you the ability to invest in many different markets with minimal work. This approach may also allow investors to structure agreements that align with their financial goals while supporting a variety of projects and borrowers.

Learn more about how alternative investors can fit in your retirement approach with our free Self-Directed IRA Success Kit.

Explore Alternative Investments in a Self-Directed IRA

Market volatility can cause many investors to worry about whether their retirement portfolio can survive a downturn. Keeping a cash cushion, consistently reassessing your risk tolerance, and diversifying your portfolio with alternative assets are possible ways to weather an uncertain market.

A self-directed IRA allows investors to explore a broader range of asset types within a tax-advantaged retirement account, providing flexibility to build a portfolio that aligns with their individual goals and interests. Contact an IRA Counselor today to discuss your self-directed IRA account options.

Equity Trust Company is a directed custodian and does not provide tax, legal, or investment advice. Equity Trust Company is not a fiduciary and does not endorse, recommend, or opine on suitability of any specific asset class or investment.  Any information communicated by Equity Trust Company is for educational purposes only, and should not be construed as tax, legal or investment advice. Investing involves risk, including possible loss of principal. Questions related to your specific tax, legal, and investment needs should be directed to an attorney or financial professional.