Alt Assets 101 - Why Alternative Assets

Alternative Assets

Let’s get the obvious question out of the way first. What is an alternative investment? Basically, it is any investment that falls outside of the traditional categories of stocks, bonds, mutual funds, and plain old cash. Alternative investments can include a wide range of asset classes, such as real estate, private equity, promissory notes, private stock, precious metals, and more.

Why Invest in Alternative Assets?

Let’s use Real Estate as an example since it is familiar to so many. Investing in alternative assets like real estate can be a good idea in a recession for several reasons:

1. Tangible Asset: Some Alternative Assets, such as precious metals or real estate, are tangible assets, which means they have intrinsic value that can be seen and touched. During a recession, when the stock market and other financial instruments can be volatile, tangible assets like real estate can provide a sense of stability and security.
2. Steady Cash Flow: Real estate can provide a steady cash flow in the form of rental income. Even during a recession, people still need a place to live, and rental income can provide a reliable source of revenue for investors.
3. Inflation Hedge: Real estate can act as an inflation hedge, meaning that its value can increase with inflation. During a recession, central banks may increase the money supply to stimulate the economy, which can lead to inflation. Real estate can help protect investors from the negative effects of inflation.
4. Potential for Appreciation: Real estate can appreciate in value over time, especially in areas with growing populations and strong job markets. During a recession, property values may temporarily decrease, but over the long term, real estate has historically been a good investment.
5. Diversification: Investing in alternative assets like real estate can provide diversification to an investment portfolio. Diversification can help reduce overall risk by spreading investments across different asset classes.

Overall, investing in alternative assets like real estate can be a good idea during a recession as it provides a tangible asset, steady cash flow, an inflation hedge, the potential for appreciation, and diversification. However, like any investment, there are risks involved, and it’s important to do thorough research and due diligence before making any investment decisions.

Why Invest in Alternative Assets in a Self-Directed IRA or 401k??

Investing in alternative assets using a Self-Directed IRA or 401k using a custodian like Mountain West IRA  can be a good idea in a recession for several reasons:

1. Diversification: A Self-Directed IRA or 401k allows investors to diversify their retirement portfolio beyond traditional assets like stocks, bonds, and mutual funds. Investing in alternative assets like real estate, private equity, or precious metals can provide additional diversification, which can help reduce overall portfolio risk.
2. Tax Advantages: Investing in alternative assets using a Self-Directed IRA or 401k can provide tax advantages. Contributions to a traditional IRA or 401k are tax-deductible, and earnings grow tax-deferred. Contributions to a Roth IRA or Roth 401k are made with after-tax dollars, but earnings grow tax-free. Additionally, there are no capital gains taxes on investments held within a Self-Directed IRA or 401k, which can provide significant tax savings.
3. Greater Control: Investing in alternative assets using a Self-Directed IRA or 401k provides investors with greater control over their retirement investments. Investors can choose which alternative assets to invest in, and how much to allocate to each investment. This can provide a sense of empowerment and control during uncertain, or even daunting, economic times.
4. Potentially Higher Returns: Alternative assets like real estate or private equity can potentially provide higher returns than traditional assets like stocks or bonds. During a recession, the stock market can be volatile, and interest rates may be low, making it difficult to achieve high returns on traditional assets. Investing in alternative assets can provide potentially higher returns, which can help investors achieve their retirement goals.
5. Long-Term Horizon: Investing in alternative assets using a Self-Directed IRA or 401k provides investors with a long-term investment horizon. Retirement accounts are designed for long-term investing, which can help investors ride out short-term economic downturns and take advantage of potential opportunities in the market.

Overall, investing in alternative assets using a Self-Directed IRA or 401k with a custodian like Mountain West IRA, can be a good idea during a recession as it offers all the benefits listed above. However, like any investment, there are risks involved, and it’s important to do thorough research and due diligence before making any investment decisions. It’s also important to work with a qualified financial advisor who can help investors navigate the complexities of Alternative Assets.

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