From cryptocurrencies to hedge funds, alternative assets get a lot of buzz — but are they viable investments for your retirement portfolio? In this Gold IRA Guide article, five financial experts, including Harbor Crest Wealth Advisors CEO and founder Mike Hennessy, discuss whether or not you should consider alternative assets in an IRA.
Mike Hennessy said that when investors are considering alternative assets, the first question should be “Why?” Why do you want or need to invest in an alternative asset class? Assets are a tool to help you accomplish your financial goals, something ideally spelled out in a comprehensive financial plan. Make sure you understand why alternative asset classes may fit your situation before looking into the fundamentals of the opportunity and the mechanics of placing it into your IRA.
Additionally, the due diligence and paperwork requirements to invest alternative assets in your retirement account are considerable. Are you sure you understand that complicated derivative strategy? And what excessive financial leverage can do to the operating company the fund owns? Are you willing to invest your life savings on it? That raises another point — your allocation to alternatives, should you be willing and capable of investing in the asset class, should not dominate your overall portfolio risk. There is no “right” number, but alternatives, as an asset class, should be less than 15 to 20 percent of your entire portfolio. It should be considerably lower for each individual opportunity.
Alternative assets also typically come with higher fees than public securities. How much upside, over the long term, is being eroded by the annual fees imposed by the funds? Speaking of long term, do you have the ability to stretch your investment time horizon to match that of the alternative investment you are considering? To learn more, read the full article, "Should You Consider Alternative Assets In An IRA? 5 Financial Professionals Chime In," here.