Achieving Financial Freedom Through Self-Direction & Alternative Assets

Published on July 14, 2022

We don’t need to hammer home the concerns about inflation in the U.S. (actually, worldwide)—we are all seeing rising prices on products and services everywhere, and for many Americans, their paychecks don’t cover as much as they used to. According to Bloomberg, inflation hit a 40-year high in May with a consumer price increase of 8.6% over last year.

Add to that the terrible stock market performance we’ve been witnessing since the beginning of 2022, made worse by world events (and inflation). For people nearing retirement or those that are already retired, they’ve seen their retirement portfolios decline steeply over the past six months and market corrections or a quick fix are not on the horizon.

According to a CNN report in May, the stock market “meltdown” resulted in more than a $7 trillion decline in market value from the blue chip stocks in the S&P 500. The index at that time was down nearly 18% since the end of December.

CNBC reported more bad news in June, with the S&P falling to its lowest level since March 2021, bringing with it 21% losses from its January record. The Dow Jones Industrial Average has dropped (down 17% from its record high) as has the Nasdaq Composite by several percentage points (with 33% losses during this sell-off period). Treasury bond prices are dropping as well. All this is fueling recession fears.

With retirement savings in peril and the Fed trying to curb inflation, many people are feeling stuck. They are wondering how to invest to protect their retirement savings against the current market storm—and create a brighter future in their retirement years.

How alternative assets can help steady your rocking investment boat

With all this market volatility, investors may be feeling a bit of despair (we don’t blame them). And while many people understand that where there’s knowledge there is power, others might not realize the power that investing in alternative assets through self-direction can add to a retirement portfolio. Here are some of the benefits:

1. Self-direction allows for a broad array of nontraditional investments—far broader than stocks, bonds and mutual funds. Savvy investors are including various sectors of commercial and residential real estate, precious metals, private equity, among others, in self-directed IRAs, and taking advantage of investing opportunities that arise in the asset classes they know and understand.
2. The nontraditional investments allowed in a self-directed IRA have a low correlation to how other asset classes perform. So, while the stock market may tumble, an investment in mineral rights or music royalties can deliver unrelated returns. And real estate can be a lucrative option when done right.
3. Alternative assets allow investors to fulfill on their ESG goals for environmental, sustainable and governance investments more nimbly and directly than through traditional funds.
4. Self-direction enables investors to take advantage of “in the moment” investment opportunities and changing market conditions. For example, the supply chain issues the world has been dealing with since the start of the pandemic have opened opportunities to invest in transportation assets.

In short, alternative assets provide a hedge against market volatility while also helping investors develop a more diverse portfolio and offering inflation protection and yield. Additionally, the more you know about a specific asset class, the better chance you have at controlling (or increasing) your return.

Risk-reward

Imagine you’ve done your research and decided that investing in self-storage or senior housing—both growing real estate sectors—makes sense for your goals. Or you like the idea of investing in renewable energy assets, timber, or infrastructure sectors. All these are possible through self-direction.

Of course, there are risks with alternative assets as there are with any type of investment, but self-directed investors are comfortable making their own investment decisions; conducting their research and due diligence on the assets; and generally enjoy taking a more active—and proactive—approach to building their retirement wealth. They understand the nontraditional investments they are including in their self-directed retirement plan can have strong ROI. And they like the control they have over their investments and their future.

Investing in alternative assets in a self-directed IRA can create a powerful path to financial freedom. Self-directed investors have more avenues for beating back the hazards of inflation and stock market volatility. And they have more paths to take for investing in what matters most to them.

If you’d like to explore how a self-directed IRA can put you on the path to financial freedom, feel free to schedule a complimentary educational session with a representative from Next Generation. Alternatively, you can contact us with your questions about self-direction by email at NewAccounts@NextGenerationTrust.com or call us at 888.857.8058.