Why Financial Advisors are Adding Alternative Assets to Clients’ Portfolios

Published on August 11, 2022

In the last two decades, investors have dealt with periods of intense market volatility and this year, a high level of inflation is adding to investor woes.

Although financial advisors have historically stuck with more traditional investments (stocks, bonds, mutual funds) and the occasional foray into hedge funds, alternative assets—like those allowed in a self-directed IRA—are gaining favor with financial advisors who seek to diversity their clients’ retirement portfolios.

The bottom line: Including alternative assets enables advisors to work more responsively with clients’ investing goals, and align certain investments with their risk tolerance, age, and timeline to retirement with greater creativity and variety.

Benefits of diversifying with alternative assets

Financial advisors are seeing more and more that including nontraditional investments that are not tied to interest rates, nor correlated with stock market performance, offer a hedge against volatility and a buffer against inflation.

A recent survey from Cerulli Associates of 100 advisors revealed average alternative allocations of 14.5% during the first half of 2022; advisors reported they want to boost percentages to 17.5% in two years. The industry average for alternative allocation (such as real estate, commodities, and private equity) is closer to 10%.

Recommending that they include alternative assets in their retirement portfolios enables advisors to be more effective with their clients and develop more personalized retirement strategies.

They can guide clients towards asset classes that they are interested in or know a lot about. And for those clients who are already investing in alternatives outside of their existing retirement plan, advisors can show they “speak their language” and build a stronger relationship.

Alternative assets and self-directed IRAs

Alternative assets are typically long-term, offer greater investing flexibility, and are somewhat protected from the macro trends of the stock and bond markets.

They enable individuals to invest along their personal interests, such as shares in a theatrical production, a coffee plantation, or a biotech startup. And when held within a self-directed IRA, the assets grow in a tax-advantaged account, which benefit the investor in the long run.

Although they may consult a trusted advisor regarding asset allocation, typical self-directed investors are those who are comfortable making all their own retirement decisions and conducting their due diligence about these nontraditional investments.

And while the self-directed IRA custodian/administrator, like Next Generation, does not sell or endorse any investments, the individual’s financial advisor can serve as a reliable sounding board when exploring the many options available through self-direction.

Next Generation is here to help

Next Generation is here to help self-directed investors and their advisors understand more about how self-directed IRAs work and share information about the types of investments allowed in these plans.

For financial advisors and/or their clients who wish to learn more about self-directed retirement plans, you may schedule a complimentary educational session with a representative from Next Generation. Alternatively, can contact us directly with your questions about self-direction by email at NewAccounts@NextGenerationTrust.com or call us at 888.857.8058.