6 Alternative Investments Your Financial Advisor Won’t Tell You About

I’m sure your financial advisor is great at what they do. She may help you set financial and lifestyle goals, make investment decisions to achieve those goals, track your progress toward the goals, and hopefully prepare for a life of financial freedom.

But what if there were a way to fast-track your progress toward your financial goals by investing in assets outside of the offerings on Wall Street? These different options for nontraditional investment opportunities, also known as alternative investments, may include (but certainly aren’t limited to):

• Real estate

• Precious metals

• Cryptocurrency

• Peer-to-peer loans

• Hedge funds

• Private equity

The truth is, your financial advisor may only be an expert in traditional asset classes like stocks, bonds, mutual funds, ETFs, and money markets. Due to the education programs through which most financial advisors obtain their degrees and certifications, it’s likely she was never trained in investment options outside of Wall Street in any way, shape, or form. 

Not to mention, licensed financial advisors who sell and manage traditional investment products (like the assets listed above) are held to strict regulatory and compliance standards so as to prevent unethical practices within the financial advising industry. Therefore, giving investment advice in regards to unlicensed products (like real estate) could put her at risk for regulatory nightmares.

However, just because your advisor can’t or won’t advise you on nontraditional asset classes doesn’t mean that these options are not viable and attractive investments to help you build wealth for retirement and ultimately attain financial security. And in reality, we’re inclined to believe that some of these asset classes may actually provide more financial security than what you can get on Wall Street. 

6 Alternative Investments to Help You Diversify and Profit

Your options to invest outside of Wall Street are essentially limitless. But there are some more common alternative investments that savvy investors like to use to diversify their portfolios, generate more profit, and invest in what they know. We cover six of the most common alternative investments below.

What’s more, you can still invest in these alternatives using your retirement savings in tax-advantaged accounts. All you need to do is open a self-directed IRA (SD-IRA). If this is of interest to you, keep reading to learn about some of your available options. 

1. Real Estate

Real estate is perhaps the most common alternative investment because it’s an asset class that many people know about and feel comfortable with. There are dozens of types of real estate investments, allowing investors the flexibility to invest in physical real estate properties across uses and industries. Common real estate assets include:

• Residential real estate

  • Longterm rental properties

    • Single-family homes

    • Multi-plex properties

    • Apartment complexes

  • Vacation properties

  • House flipping

• Commercial real estate

  • Office buildings

  • Shopping centers 

  • Retail stores

  • Hotels

• Industrial real estate

  • Warehouses

  • Manufacturing buildings

  • Research and development campuses

  • Power plants

• Vacant land

  • Undeveloped, raw land

  • Farmland

  • Subdivision lots

  • Recreational parcels

  • Timberland

As you can see, there are tons of options for investing in real estate. Real estate is attractive to investors for many reasons, including the fact that it has historically appreciated over the long term, it leverages relatively inexpensive debt to build equity, and it can generate monthly cash flow in a short period of time.

2. Precious Metals

Precious metals like IRS-approved gold and silver are another common investment alternative that investors use to diversify their portfolios. Gold and other precious metals are widely regarded as hedges against inflation. Additionally, gold can be a good diversifier against volatile stocks and bonds, as the value of gold is not heavily correlated with other asset classes. 

However, physical gold, silver, and platinum do not provide passive income. Precious metals must also be stored in secure, IRS-approved facilities, so the storage and insurance fees to keep gold investments can eat away at returns. For these reasons, it’s typically best to invest only a small portion of your portfolio in precious metals. 

3. Cryptocurrency

Cryptocurrencies are quickly becoming more popular, so much so that 14% of advisors in 2021 are currently using or recommending cryptocurrencies as investment options to their clients. Cryptocurrency has the potential to generate extraordinary returns and, due to online trading platforms like Coinbase, it’s easy and inexpensive for investors to get in on the action.

But cryptocurrency is also notoriously volatile and is currently unregulated and unlicensed. Furthermore, many experts are speculating about cryptocurrency’s intrinsic value and whether all the hype could lead to a devastating bubble burst for investors who are heavily invested in cryptocurrency. 

4. Peer-to-peer Loans

Peer-to-peer lending, also known as P2P, is an investment option that allows you to loan money to other people to be used for small businesses, personal use, or other needs. Investors interested in P2P investments can go to sites such as LendingClub or Prosper. These platforms connect you directly with borrowers the platform has qualified. 

P2P lending can provide fairly high returns and passive income. Online platforms like the ones listed above make it easy to get started. You can also easily diversify your P2P investments by investing smaller amounts of money in notes provided by the platform. Of course, P2P is still a risky investment, as P2P borrowers may default on their loans.

5. Hedge funds

Hedge funds are exclusive investment options, available only to institutional investors such as endowments, pension funds, and very high-net-worth individuals known as accredited investors. Accredited investors must have a net worth of at least $1 million (not including the value of their primary residence) or an individual income above $200,000 per year ($300,000 if married). 

It’s important to note that these thresholds for accredited investors have not been updated since the 1980s. So even if you qualify as an accredited investor today, investing in hedge funds may not be a good idea due to the high capital requirements and inherent risk. Hedge funds are similar to mutual funds but have much more freedom to use aggressive investment strategies and alternative assets.

Hedge funds do provide greater opportunities for diversification and higher returns, but they are also highly risky due to the aggressive investment strategies used by hedge fund managers. Additionally, hedge funds come with high fees and have historically underperformed stock market indices.

6. Private equity

Private equity is an expansive asset class that refers to investments made into private companies, rather than public companies available on public exchanges. Some different types of private equity include venture capital for start-up businesses, growth capital for expanding businesses, and buyouts for whole companies or company divisions for sale. 

Private equity investments can sometimes involve more than monetary investments. Many private equity companies also provide institutional expertise or management services to help a new company grow or a struggling company recover. Like hedge funds, most private equity investments can only be made by institutional investors. 

Invest Your Retirement Savings in an Alternative Investment with Chicago Trust Administration Services

As you’re building wealth for retirement, it’s important to know your options. And you have many more options to choose from besides stocks, bonds, mutual funds, ETFs, and money markets. Alternative investments may require more creativity, research, and oversight on your part, but they can also provide more passive income and significantly higher returns.

At Chicago Trust Administration Services, we are custodians of self-directed IRAs, which allow you to invest in alternative assets while still taking advantage of the tax benefits associated with traditional or Roth retirement accounts. Although we can’t advise you on your investment opportunities or decisions, we can make the investing process easy with your SD-IRA. 

To see how we can help, I invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.

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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.