How to Use Retirement Funds for Long-Term Alternative Investments

Patience is a key tenet of any solid investment strategy. The frothy days of a plus-25,000 Dow Jones Industrial Average has prompted many casual investors to rush in from the sidelines and make heavy investments in the bull market, but the euphoria surrounding the Dow’s positive upward moves are likely to end in a nasty morning-after hangover if this extended rally eventually stumbles.

Long-term investment strategies include asset allocation in a variety of alternative investments that provide a hedge against the additional risk that can come with a stock-heavy portfolio. Alternative investment options can still produce strong returns, and more importantly, buffer investors against a bear run.

One option many everyday investors typically don’t consider when it comes to alternative investing is using funds from their individual retirement accounts. Rocket Dollar can help people flip the switch on retirement investment philosophies and create 21st century diversification with their retirement portfolios.

Investing with a Self-Directed Solo 401(k) or Self-Directed IRA

According to the Employee Benefit Research Center, individual retirement accounts constitute the single-largest repository of retirement plan assets in the United States – more than $2.69 trillion at year-end 2014.

The overall average balance for IRA account holders jumped from $92,000 in 2010 to more than $134,000 in 2014. Despite the hefty rise in account balances, more than 61 percent of Roth IRA account holders did not make contributions to their IRA during that five-year span. That’s because most people with money in company-sponsored individual retirement account don’t use their assets to their fullest potential. With a Rocket Dollar account, those hard-earned funds can be put in play in a variety of alternative investments that produce solid returns and steady growth.

Retirement funds are an excellent option for alternative investing because alternatives typically have longer hold periods. Hold time is an important factor of any asset-savvy investors who purchased Bitcoin in July of 2010 bought in at a meager $.08. In December of 2017, CoinDesk’s Bitcoin Price Index closed at $19,783, although it’s since retreated to about $6,700 in June of 2018. Real estate isn’t subject to such wild price swings and typically is considered a longer-term play, especially residential real estate.

Most standard retirement accounts allow you to purchase stocks, bonds, mutual funds and ETFs — your options basically are limited to investing in the stock market. For the most part, returns are all correlated — they move up and down at the same rate. Investing in real estate, startups, small businesses or peer-to-peer lending can be counter-cyclical to those movements. The goal is not to outperform the market but to provide alternative options so all your financial eggs are not in one basket. It’s a risk-averse diversification strategy.

These alternative investments also don’t provide investors with fungible assets they can sell quickly. Investment funds are pretty much locked up — which is why it makes perfect sense to use a Self-Directed Solo 401(k) or Self-Directed retirement account to make these types of investments since you can’t access retirement money until you reach the age of 59.5.

If you are going to make investments where it takes longer to get your money back, then invest with retirement dollars that are by definition to be used for one purpose: retirement. And by purchasing these assets using a Rocket Dollar Self-Directed Solo 401(k) or Self-Directed IRA, investors can buy in with tax-deferred investment vehicles that protects important liquidity. People who purchase rental homes or invest in startups using surplus cash are tapping into important liquidity that is competing for medical bills, college or repairs on their house, or just life in general. Using a Rocket Dollar tax-deferred retirement account ensures that liquidity stays on hand and is available as needed.

It’s time for investors to re-think the asset classes they hold in their retirement accounts. As much as 97 percent of IRAs are invested in stocks, bonds, mutual funds and exchange-traded funds. Illiquid assets such as real estate or business lending should make up a larger part of your retirement account so retirement investment strategies have more balance between the stock market and hard physical assets.