пятница, 28 февраля 2020 г.

The Alternative Assets You Need (And Don’t Need) In Your Ira

Timor Invest
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Diversification via alternative assets is among the best ways to help protect your portfolio.  Nothing ever grows and grows forever. There are always peaks and valleys, and the timing varies depending on the commodity.

If you’re starting to think about retirement and your IRA (and you should be, no matter what age you are,) then this fact has probably crossed your mind.  For those that have primarily invested in stocks and bonds, it leads them to ponder the dreaded worst-case scenario: “What if the markets tank when I’m about to retire?”

We saw the effects in the crash of 2008 and the subsequent recession.  Millions of Americans witnessed their retirement accounts get absolutely pummelled, even though they had properly planned for years, saved all they could, and did everything right.  It didn’t matter in the end. The lucky ones were still young enough where they could afford to wait years for the market to recover. The rest saw their hope of a relaxing and prosperous retirement utterly destroyed.

The financial crisis became the perfect case study for the advantages of alternative assets.  Take gold, for example. Wise investors, including billionaire Eric Sprott, saw the writing on the wall, recognized the stability that gold has always maintained, and experienced minimal damage from the recession as a result (more on that, later).

We’ve all heard the quote about “those that don’t learn from history are doomed to repeat it.”  The same applies here. In the last year especially we’ve seen more and more recession warning signals emerge, with many predicting it will finally hit in 2020.  So what should you do, then?

Adding alternative assets to your IRA is the best way to start.  It’s essentially a win-win scenario. Not only are you still getting all of the tax perks of an IRA, but you’re also enjoying the specific benefits of the alternative asset itself.

So which assets do you need in yo,ur IRA and which should you avoid?  First, let’s look at your best options.

The Best Alternative Assets for Your IRA

Gold

It’s the gold standard for alternative assets (no pun intended), and has been for thousands of years.  Throughout the course of human civilization, gold has demonstrated unmatched stability. It has intrinsic value, rarity, a gradually decreasing supply, and constant demand.  Nothing else rivals gold’s comprehensive list of benefits.

Everett Millman, a Precious Metals Specialist at Gainesville Coins, explains how “it’s a boon for investors that physical precious metals can be included in a self-directed individual retirement account (IRA). Precious metals tend to preserve their purchasing power over time, providing a useful hedge against the effects of inflation on your savings. Gold and silver are also great portfolio insurance: They can help offset losses in riskier assets (like equities) in the event of a prolonged market downturn.”

Millman hits the nail on the head here, as one of the big advantages in gold is the protection that it offers.  As we saw in 2008 and every prior recession, those that held gold avoided the worst of it. If you were smart enough to hold onto your gold over the years then you’ve been enjoying its other primary benefit, steady growth.

Real Estate

Real estate, like gold, has quite the lengthy track record as a high-performing asset.  With populations exploding around the globe, the scarcity of land is only going to increase.  It’s a bit more volatile than some of the assets on our list though, and the real estate market is prone to bubbles.  Just look back to when the last one started to pop in 2006 to see the devastating effects.

Nonetheless, if you can avoid these relatively rare yet severe dips or have the time and resources to ride them out, real estate makes a great addition to an IRA.  Just note that there are some restrictions. The property you purchase can’t be a personal residence. It also cannot be a second home, vacation home, or something you rent occasionally.  Also, remember that you can’t put property you already own into an IRA, it must be a new purchase.

Rental properties can be particularly lucrative, so if you’re thinking about adding real estate to your portfolio, consider apartments or commercial buildings that you can lease to tenants.  Your baseline investment will be in something safe and tangible, and you have the opportunity to profit every month via rent collection.

Cryptocurrency

By far the newest entry that we’ll cover, cryptocurrencies have exploded in popularity over the past ten years.  Bitcoin is the undisputed king of the crypto markets, maintaining a roughly 70% market share. It has made millionaires and even billionaires out of those that were wise enough to invest early.  Even if you only got in a few years ago, then you’ve been holding onto an asset that has outperformed every single one of its competitors.

When you step back and examine the technology and advantages that crypto brings to its users, then it’s really no surprise.  The security is unmatched, with no computer on earth able to break the encryption within. In fact, it would take a supercomputer a mind-boggling 0.65 billion years to crack the hash of a single bitcoin address.

That’s only the tip of the iceberg as far as benefits go.  You’re provided 100% transparency but yet enjoy full discretion.  Middlemen and their fees are eliminated, Bitcoin is accessible from anywhere at any time, and offers protection from third-party intervention or government seizures.

If you feel like you’ve missed out on Bitcoin already then don’t worry, it’s only just getting started.

As we’ve just seen, gold, real estate, and cryptocurrencies are your best bets in terms of stability, protection, and growth.  But what about the rest of the alternative assets out there? Perhaps you’re considering a purchase and are wondering if it’s IRA-eligible?  Let’s take a look at the most common assets you CAN’T include in your IRA.

Want these in your IRA?  Think again.

Derivative Positions

While stocks and mutual funds are just fine, certain types of derivative positions are not.  Particularly those with unlimited or undefined risk, as the IRS forbids them. In general however, you’ll find that most IRA custodians prohibit any type of derivative trading, with the possible exception of covered call writing.

Considering their highly speculative and risky nature, it makes sense why derivative positions aren’t allowed in something that’s meant to provide stability.

Collectibles and Antiques

Perhaps you found a hidden gem at the flea market and soon discover it’s worth thousands.  Unfortunately, items like these can’t be used with an IRA to guard against taxes if you choose to sell and profit off them.  This includes items like stamps, baseball cards, silverware, comics, artwork, jewelry, porcelain, wine, and toys.

Artwork was actually permitted in IRAs originally but was disallowed in the 1970s.  At that time, more and more art was being recovered after being stolen by the Nazis during the Second World War.  Because of this, the IRS wanted to be sure that IRAs couldn’t be used to hide stolen artwork and thus prohibited it in general.

Life Insurance

Life insurance contracts are excluded from IRAs.  If you wanted to add a whole life, universal, term, or variable policy then you’re out of luck.

There’s one exception for this, but it’s only for qualified retirement plans.  In that case, you are allowed to purchase life insurance, but the amount must be “incidental” compared to the overall value of the account.  The IRS uses different percentages depending on the type of life insurance, so you’ll have to check with them if it’s something you want to pursue.

Choose Wisely

The benefits of portfolio diversification via alternatives assets are plentiful.  Your retirement accounts inherently exist to provide you with security later in life, so it makes sense to invest in safe assets that will see appreciation.  The tax benefits of IRAs can help you save significantly in the end, so they are always a smart choice. It’s what you select for inclusion in your IRA that will make all the difference later on.  Choose wisely and you’ll be setting yourself up for the retirement you’ve always dreamed about.

At Regal Assets we believe in providing you with trusted and proven investment options.  We take pride in the way we do business and have enjoyed helping our clients grow their portfolios for over a decade now.  Our expert team members work side-by-side with you every step of the way, so you can be sure that your assets are protected.

See for yourself what we can offer with our FREE Investor’s Kit.  It explains Regal’s IRS-approved investment options and how they work.  We’ll help you choose the right strategy to achieve your goals.

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