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Portfolio > Economy & Markets > Stocks

Beyond Stocks and Bonds

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At a time when financial market conditions are going from bad to worse, experts believe that those who can afford to put some of their retirement savings into alternative assets will increasingly be looking to do so.

“Stock market fluctuations are giving people angst and they’re looking for investments with little or no correlation to stock markets,” says Phillip Borup, president/CEO of Stonehurst Securities Inc., a Folsom, California-based RIA and broker/dealer. “Another issue is that many people are realizing that they will not have enough for retirement for one reason or another and are looking for retirement assets that will enhance the income stream they will have at retirement.”

Indeed, the quest for income generation in retirement is what has been driving many towards investing in alternative assets such as real estate, private equity, and tax liens, to name a few. These kinds of investments offer the potential both for diversity as well as for high returns, and increasingly, advisors are offering their clients the ability to invest in them with a self-directed IRA. In a move to capture and maintain high-net-worth individuals (those most likely to choose the non-traditional route), these advisors are increasingly providing options beyond investing in traditional stocks and bonds to clients. “Based on the information we gather from clients, we will introduce them to the investments that best suit their objectives,” Borup says. “When it is suitable, various alternative investments may be reviewed and offered.”

It is within IRS guidelines to invest in real estate, private stock, tax liens, hedge funds, and other non-traditional investments with an IRA, but even so, alternative investing is still not as mainstream as experts hope it would be, says Jim Wagner, president of Carlsbad, California-based Trust Administration Services, a division of First Regional Bank that provides self-directed IRA retirement accounts, retirement planning services, real estate IRA and IRA custodian accounts. This is largely because people still have an inherent fear of putting their IRA dollars into non-traditional products and because the retirement finance marketplace is still dominated by traditional investing, even for people who can afford to play it more risky.

“Most of the retirement advertising comes from large firms that pitch investing in traditional assets like stocks, bonds, and mutual funds,” Wagner says. “We don’t have huge advertising budgets, we depend upon advisors to spread the word.”

Wagner believes that advisors need to get to know their clients’ financial profiles and goals thoroughly before directing them toward alternative investing. Advisors also need to direct their clients to people who are specialized in alternative assets and know the ins and outs of investing in these, he says, as this is the only way to truly maximize their potential.

Wagner and his colleagues are all experts in the non-traditional investment universe and they are particularly well versed in real estate–an area Wagner believes offers great potential for anyone looking to diversify at this time, since traditional lenders have tightened their standards significantly. “We’re best at the rules and regulations and the compliance angle, and we help people avoid the pitfalls of alternative investing,” Wagner says.

Specialists like Wagner can help people navigate the complexities of investing in non-traditional assets, particularly when it comes to cracking the rather complex tax code surrounding assets like real estate. It is important, therefore, that those considering investing in anything esoteric work with experts, and they also need to be aware of the fact that alternative assets are typically highly illiquid and “once the investment is made, they need to live with the results, good and bad,” Borup says. “The downside to most alternative investments is that they can be speculative and very risky.”

Overall, people who choose to invest a portion of their IRA in non-traditional assets generally have more funds at their disposal (between $1 million to $5 million to put away, Borup says), so it is really a select audience, but it is also a group that would be well-served by exploring the options available.


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