Beyond Stocks and Bonds: Integrating Alternative Assets into Your IRA
Before we jump into the details, let's define alternative assets for those who may be new to the concept or less familiar with financial terminology.
Alternative assets, commonly known as 'alternative investments,' refer to investment options outside of traditional assets like stocks, bonds, and money market accounts. These assets encompass a wide range of investment types, including real estate, commodities, hedge funds, private equity, venture capital, farmland, collectibles, and notably, cryptocurrency.
Alternative assets often possess distinct characteristics and may offer different risk-return profiles compared to traditional investments. They’re favored by investors seeking diversification, potential higher returns, and opportunities to hedge against market volatility.
Cryptocurrency, such as Bitcoin, has emerged as a notable alternative asset class in recent years, offering investors exposure to decentralized digital currencies and blockchain technology.
| Asset Class | Average % Return Range | Risk Range |
|---|---|---|
| Stocks | 7% - 10% | High |
| Bonds | 4% - 5% | Low to Moderate |
| Money Market Accounts | 0.5% - 3.5% | Very Low |
| Real Estate | 6% - 11% | Moderate |
| Commodities | -5% - 10% | High |
| Hedge Funds | 5% - 11.5% | High |
| Private Equity & VCs | 10% - < 20% | Very High |
| Farmland | 3% - 6% | Low to Moderate |
| Collectibles | 5% - 15% | High |
| Cryptocurrency | 0 - > 100% | Very High |
Now, it is nearly impossible to integrate the above list into your IRA (not that anyone would actually want do so, even for the purposes of diversification). However, if you even glanced at the business section these past 2 months you saw that the Spot Bitcoin ETF was debuted. Despite years of mainstream media dismissing Bitcoin as a passing trend, something favored by criminals or used for illicit purposes, they've suddenly become the biggest cheerleaders for these newly approved Bitcoin ETFs. It's quite the about-face! But fear not, my dear BMG’er, for now you too can join the ranks of 'respectable' investors by using your retirement account to 'own' the once-dreaded cryptocurrency, Bitcoin. Oh, how the times have changed.
It should really make you think, “It is only when big money gets behind it that “It” earns legitimacy or is it just the old adage, “Money Talks”? The Ad dollars have surely helped the ETF net inflows. Now over 5 billion since the debut. It’s been less than 60 days of trading and individuals haven’t finished allocating. Should you update your retirement strategy to include one of the top Bitcoin ETFs?
The answer to that questions is, depends. Let’s get two things clear. One, for most investments, they require extensive due diligence prior to the initial commitment. The illiquidity premium along with the manager selection process are key decision factors. It is no surprise that the majority of alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex nature and limited regulations. But in this case, this is the price of Bitcoin.
And two, for retail investors, real estate is the alternative investment that leads to building wealth efficiently. This can be a great wealth management strategy. Given the projected interest rate environment, an opportunistic real estate portfolio is likely set to capitalize on potential mispricings and/or distressed real estate opportunities.
Therefore, as investors we have to bring to your attention the unlikeliness of becoming a millionaire by allocating into this newly ‘permitted’ asset class. If you choose to follow the trend, do so with the understanding that you are looking for exposure to a unique market, seeking to gain diversification and/or inflation protection. You are not getting the “first mover advantage”.
Historically, trend-following tends to pay off for those that join in early and can plan the exit strategy. After just over a month of trading, RIAs are already recommending their clients a 3% - 5% allocation to the spot Bitcoin ETF strategy. So, if you trust their research and due diligence why wouldn’t you move funds to this space?
KeyTakeaways
-Alternative Assets often offer different risk-return profiles compared to traditional investments.
-Accessibility to Alternative Investments like the Bitcoin ETF has emerged but investors should tread carefully before jumping the bandwagon.
-By spreading investments across various asset classes and strategies, investors can mitigate risks and enhance long-term returns
-Seeking professional guidance and staying informed about investment opportunities are essential for navigating the complexities of alternative investments.
Note: These BTC ETFs strategy carry an expense ratio in the range of 0.19% - 1.50% (the mean sitting at 0.25%) to invest in their respective vehicles.
To conclude, the rise of alternative assets such as the Bitcoin ETF strategy presents both opportunities and considerations for investors. It's crucial to approach any trend with caution, and conduct thorough due diligence. As the accessibility of investing in Bitcoin through IRAs becomes more widespread, it's important to question the reasons behind this sudden accessibility and consider whether direct investment in Bitcoin may be a preferable option.
Ultimately, whether to allocate funds into this strategy is a decision that should be made with careful consideration of individual financial goals, risk tolerance, and long-term investment strategies. As the landscape of investment opportunities continues to evolve, staying informed and seeking professional guidance can help navigate the complexities of this asset class. Remember, your money is yours to manage. Perhaps you believe there’s a chance that the price of bitcoin could go to $150,000, $500,000 or higher. No one should judge you if you’re allocating some money today because based on that bias. Ask yourself, if the price reaches 1 million USD per BTC, what kind of impact would it have on your plans?
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Like the topic of Investing, consider yourself a DIY’er? Check out these two great reads!
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The Intelligent Investor by Benjamin Graham
The Psychology of Money by Morgan Housel
