Planning for retirement is a daunting task for anyone. The fear of not having enough to live on after you have left the nine-to-five is a big motivator for starting to save early in your career. But it’s also one reason investors are turning to alternative investments in pursuit of higher, sustainable long-term returns.
Here are some top picks for alternative investments for retirement:
Bitcoin has come of age. Bitcoin, the virtual currency, is emerging as a new asset class that’s fast becoming mainstream, even gaining acceptance by regulators. Investing into Bitcoins for retirement is now possible via a self-directed IRA. This qualified individual retirement account is currently the only U.S.-based fund approved by the IRS that allows investors to keep the digital currency in their retirement portfolios.
The process of adding Bitcoins to your self-directed IRA (SIDRA) is simple and fast.
The regulations and rules for the Bitcoin IRA are the same as for standard self-directed IRAs, which means no access to your money until you’re 59½ (or pay a penalty for early withdrawal). While individuals can simply own Bitcoins as well, Bitcoin IRA provides a structured way to do so with the benefits of tax-advantaged retirement saving and without the hassle of safekeeping.
Investors who want to diversify, generate returns and hedge against inflation often turn to real estate. Individuals can park money in a good commercial or residential property and benefit from rental income while the value of the property appreciates over time.
You can also hold real estate through a real estate investment trust (REIT) or in a self-directed real estate IRA. While real estate has its shortcomings, a Morgan Stanley survey of millionaires finds that it is still the most traditional and popular alternative asset class.
Peer-to-peer or social lending works in a way that is advantageous to both borrowers, who get loans at interest rates lower than banks, and lenders, who can earn higher rates of return than bank deposits provide.
We recommend choosing more than one peer-to-peer platform from which to lend out money to minimize your risk from defaults. These include Lending Club, Prosper, Upstart, Funding Circle, Peerform, Pave, Daric, BorrowersFirst and SoFi.
One of the few tangible liquid assets, gold has traditionally played the role of an effective inflation hedge. While over the years its correlation with stock prices has risen (hence it’s not the best way to diversify), it remains the mainstay in times of crisis. You can hold gold as bars, coins or jewelry, of course, but there are more innovative ways to invest, including gold exchange-traded funds, gold mutual funds investing in companies involved in gold mining, and gold futures and options.
There is also the self-directed IRA route – either gold on its own, or along with other precious metals, such as platinum and silver. Overall, irrespective of the form, an allocation of 5% to10% towards gold is considered ideal for an investor’s portfolio
The Bottom Line
Given that some alternative assets are still maturing, a smart course might be to combine one or more of them with traditional investments for a balanced retirement portfolio.
Alternative or nontraditional investments have advantages over traditional assets like stocks and bonds, including high income levels, diversification, risk substitution and a hedge against downside. One way to invest in these assets is via a self-directed IRA’s. As always, speak to your financial advisor before investing in any of these alternatives.