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3 min read

5 Types of Alternative Investments To Utilize

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Traditional investment options like stocks and bonds can't satisfy the needs of all retirement savers. Now, there are many types of alternative investments that can help diversify a retirement account.

Are you wondering, “what are alternative investments?” Well, they are investments into assets that aren’t typically in a retirement plan. These investment options let you use your money for investing into the assets you understand and want to hold and not only those listed by your equity broker. They can be key for portfolio diversification if you're looking for an investment option outside of a traditional asset class.

Thus, an alternative investment can help an investor diversify to improve returns, reduce risks, and meet unique financial or personal goals. In particular, alternative assets held in a self-directed retirement account give savvy retirement savers a chance to control their financial futures better. That way you don’t have to rely on the ups and downs of equity markets or more traditional investments.

The Types of Alternative Investments to Look Into

When you're ready to move past traditional assets, we have five types of alternative investments that you can use to build a balanced portfolio to grow your wealth and financial security.

1. Real Estate

Calling real estate an alternative investment might confuse some people. After all, ancient cultures certainly developed notions about real estate ownership tens of thousands of years ago.

That was when people started exchanging their nomadic ways for more stable housing and farmland. Still, modern sources generally refer to assets besides equities as an alternative investment.

Of course, many people don't have the funds or ability to assume debt to buy real estate outright. Luckily, the marketplace offers several solutions to pool money with other investors that allow you the option of investing.

That way you can still realize the benefits of collecting revenue and building asset value in real estate investments. In addition, savers can use some retirement accounts to borrow money from themselves to buy real estate.

Alternative Methods to Fund Real Estate Investing

Examples of tactics that allow investing in real estate without needing to take out a new mortgage:

  • Real Estate Investment Trust: Often called a REIT, these trusts invest in real estate companies or notes and allow investors to buy-in.
  • Crowdfunding: Investors join together to pool funds and receive returns and share growth based upon the size of the investments.
  • Investing with retirement accounts: Retirement savers can borrow from their own self-directed IRA or 401(k) funds to invest directly into real estate.

2. Private Equity

A retail investor can feel limited by public offerings from their brokers. According to NerdWallet, private equity can give investors a way to diversify and generate higher returns. Still, most regular investors believe that only billionaires or exclusive hedge funds ever get offered these opportunities.

For instance, NerdWallet reported on a study that demonstrated investments in corporate buyouts earned an average return of 13.1 percent. Compare that to an average return of 8.1 percent in public markets.

Investors should know about open marketplaces that pool investors' resources, especially when it comes to venture capital opportunities. That way you can get in on offerings like startup funding, pre-IPO employee stock sales, and corporate crowdfunding. This can allow you to move past some more traditional investments and into alternative investing.

3. Farmland

People with agricultural experience often wish to purchase farmland for an investment in their retirement accounts. After all, this is the kind of asset these people already understand and have enjoyed success with.

The Farm Futures website clarifies the relatively complex process the IRS requires for personally investing in a farm for retirement. Still, solutions exist to simplify the process. Various services may create an account that simplifies investing in whole properties or shares in existing farms so you can incorporate it into your investment strategy. Oftentimes individual investors have more opportunities when pooling their money with others.

4. Metals and Minerals

Land might stand out as one of the oldest asset classes that is classified as an alternative asset, but metals and minerals also enjoy a long and storied history. Investing in these alternative assets allows you to hedge against vulnerabilities in other financial markets.

Self-directed retirement accounts can hold various precious metals, including gold, silver, platinum, and palladium. As explained in this podcast about OneGold, modern technology makes investing in these traditional assets incredibly easy. Besides precious metals, other services can help an investor to invest in metal and mineral production right inside their retirement accounts.

5. Cryptocurrency

Unlike many alternative assets, cryptocurrency has only existed for a little over a decade. At the same time, digital currency has blossomed into a multi-trillion-dollar industry and transformed the way millions of people think about money.

Tax implications of buying and selling crypto present one obstacle that often keeps an investor out of the market. However, holding cryptocurrency in a self-directed retirement account can defer, minimize, and simplify taxes.

For instance, some services give retirement savers the chance to earn exceptional yields by holding cryptocurrencies that they stake or lend out to others. Because of that, investing in cryptocurrency is more accessible than ever.

How to Incorporate These Types of Alternative Investments in Retirement Accounts

The IRS publishes rules about assets it allows in self-directed IRAs and 401(k) investing. Because of that, be sure to comb through alternative investment platforms before deciding who to utilize.

Rocket Dollar doesn't just make it easy for retirement investors to utilize these types of alternative investments. Rocket Dollar also gives members the chance to work with high-quality partners who give them access to various alternative asset investments, like real estate, private equity, farms, metals and minerals, and cryptocurrency.

Contact Rocket Dollar to ask questions about an investment option or your investing goals and let them help you set up an account.

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