What are SDIRA, QRP & 401k, and HSA Alternative Investments?
If you’re looking for a resource that explains what “alternative investments” are, how they compare to the stock market, and why you must invest in them – this page is for you.
- Alternative assets – which your Checkbook IRA, Checkbook 401k, Checkbook QRP, Checkbook Defined Benefit Plan, and Checkbook HSA can invest in – are all investments other than publicly traded stocks, bonds, and mutual funds available through a brokerage account.
- A comprehensive list of alternative assets does not exist because the possibilities are endless and new strategies are constantly created.
- Although we can’t create an all-inclusive list covering the infinite types of alternative investment options, we can:
- contrast the characteristics of alternatives and traditional assets
- provide examples of popular self-directed IRA, QRP, & 401k alt investments
Stocks, Bonds, and Mutual Funds: Risk, Return, and Volatility
How safe is the stock market?
- The stock market as whole has historically provided returns averaging between seven and ten percent – over time.
- Stock market returns, however, have been associated with incredible volatility with markets plunging by as much 40% at times.
- Although stock market investments are liquid and can readily be converted to cash, if you need that liquidity when the market is down you’ll have to take a substantial loss. Think about 2008.
Can bonds provide the returns you need for financial security?
- Bonds and fixed-income instruments with high credit ratings present less volatility, but returns on those investments are low.
- In a traditional portfolio, bonds and cash equivalents are used to avoid stock market volatility when the investment horizon is either short (5 years or less) or intermediate (10 years or less).
Can your financial advisor or stockbroker pick winning investments that safely outperform the market?
- Individual publicly-traded stocks can outperform or under-perform the market by many multiples.
- A handful of stock-pickers and market-timers have, at times, done incredibly well.
- Mutual funds and hedge funds emerged so that retail investors could benefit from the supposed superior abilities of professional investment managers.
- However, studies of actively-managed investment performance have consistently demonstrated that the overwhelming majority of actively managed funds under-perform the market over time.
Why can’t Wall Street advisors beat the market?
- Scholarly theories that explain why stock-picking and market-timing do not work are:
Can you rely on Wall Street to give you honest & expert advice for the fees you pay?
- To add insult to injury, retail investors pay huge premiums to invest in strategies that consistently do not work.
- Wall-Street and its agents have well-developed methods of compensating themselves using hefty commissions, expense loads, 12b-1 fees, trailers, contingent deferred sales commissions and other fees that most investors don’t realize they are paying.
- In addition, taxes on realized gains in an actively traded portfolio create further drag on investment returns that is compounded over time.
- Once your investment has been reduced by all those expenses, the only way fund managers can hope to beat the market is by taking excessive risk – and it has been conclusively proven that the odds are overwhelmingly against those funds and their investors.
With all those fees being paid by retail investors, it would be reasonable to think that Wall Street firms aim to give you the best advice money can buy – well, think again. In the early 2000s, the CEO of Merrill Lynch publicly apologized for the firm’s misleading of its retail investor clients, paid a $100,000,000 fine to avoid criminal charges for those indiscretions, and a Managing Director and senior research analyst was charged by the Securities and Exchange Commission, the SEC, with multiple violations. This is just one of an infinite number of examples.
Alternative Investments: Invest in what you know
Why must you invest in alternative asset classes?
- There have been only a handful of active investors that have outperformed the market over time and all of them are proponents of some variant of a single strategy: invest in what you know better than others.
- The only way to achieve high returns and safety is to take advantage of investment opportunities that are accessible to you but not to the masses.
- Publicly traded securities are constantly analyzed by millions of investors and the price of a security represents the market consensus on its risk-return profile.
- Private investments, outside of the public market, that are not subject to competition and scrutiny present opportunities that have low risk relative to their rewards.
Alternative Investments: Diversification, Market Risk, and Non-Correlated Returns
What is true investment diversification?
- Diversification is the hallmark of risk reduction when investing in the stock market.
- However, diversification within the stock market does nothing to protect you from Market Risk – the risk that the overall market will perform badly.
- Even the most well-diversified stock portfolio suffered massive losses during The Great Recession and stock market crash of 2008.
- A truly diversified portfolio will be invested in assets whose performance are either (a) not tied to the stock market, Non-Correlated Assets, or (b) assets that perform really well when the stock market drops, Negatively-Correlated Assets.
Use Your Check-Book Control Retirement Account to Invest in Alternatives
- The large financial institutions – and their representatives – that profit from the public securities markets have created the false impression that IRAs, 401(k)s, Defined Benefit Plans, SIMPLE-IRAs, SEP-IRAs, HSAs, Educational IRAs, QRPs, and other tax advantaged accounts can invest only in public securities. There could be nothing further from the truth.
- Properly structured, your tax advantaged accounts – IRA, 401k, QRP, QRP-LLC, 401k-LLC, HSA, HSA-LLC – can be invested in infinite asset classes from which Wall Street does not profit.
Private investments can provide you with high equity-like returns and low bond-like risk. When you invest in what you know – and invest with who you know – risk is mitigated and returns are multiplied.
What are some examples of popular self-directed retirement account alternative investments?
Examples of popular CheckBook Control Retirement Investments, using SDIRA, Solo 401k, QRP, or HSA are:
We invite you to join the ranks of savvy investors that use ReSure Investor Accounts to access self-directed alternative investments, in true alignment with your personal financial goals.