The Alternative Assets You Need (And Don’t Need) In Your Ira
Diversification via alternative assets is
among the best ways to help protect your portfolio. Nothing ever grows
and grows forever. There are always peaks and valleys, and the timing varies depending
on the commodity.
If you’re starting to think about retirement
and your IRA (and you should be, no matter what age you are,) then this fact
has probably crossed your mind. For those that have primarily invested in
stocks and bonds, it leads them to ponder the dreaded worst-case scenario:
“What if the markets tank when I’m about to retire?”
We saw the effects in the crash of 2008 and
the subsequent recession. Millions of Americans witnessed their
retirement accounts get absolutely pummelled, even though they had properly
planned for years, saved all they could, and did everything right. It
didn’t matter in the end. The lucky ones were still young enough where they
could afford to wait years for the market to recover. The rest saw their hope
of a relaxing and prosperous retirement utterly destroyed.
The financial crisis became the perfect case
study for the advantages of alternative assets. Take gold, for example.
Wise investors, including billionaire Eric Sprott, saw the writing on the wall,
recognized the stability that gold has always maintained, and experienced
minimal damage from the recession as a result (more on that, later).
We’ve all heard the quote about “those that
don’t learn from history are doomed to repeat it.” The same applies here.
In the last year especially we’ve seen more and more recession warning signals
emerge, with many predicting it will finally hit in 2020. So what should
you do, then?
Adding alternative assets to your IRA is the
best way to start. It’s essentially a win-win scenario. Not only are you
still getting all of the tax perks of an IRA, but you’re also enjoying the
specific benefits of the alternative asset itself.
So which assets do you need in yo,ur IRA and
which should you avoid? First, let’s look at your best options.
The Best Alternative Assets for Your IRA
Gold
It’s the gold standard for alternative assets
(no pun intended), and has been for thousands of years. Throughout the
course of human civilization, gold has demonstrated unmatched stability. It has
intrinsic value, rarity, a gradually decreasing supply, and constant
demand. Nothing else rivals gold’s comprehensive list of benefits.
Everett Millman, a Precious Metals Specialist
at Gainesville Coins, explains how “it’s a boon for investors that physical
precious metals can be included in a self-directed individual retirement
account (IRA). Precious metals tend to preserve their purchasing power over
time, providing a useful hedge against the effects of inflation on your
savings. Gold and silver are also great portfolio insurance: They can help
offset losses in riskier assets (like equities) in the event of a prolonged
market downturn.”
Millman hits the nail on the head here, as one
of the big advantages in gold is the protection that it offers. As we saw
in 2008 and every prior recession, those that held gold avoided the worst of
it. If you were smart enough to hold onto your gold over the years then you’ve
been enjoying its other primary benefit, steady growth.
Real Estate
Real estate, like gold, has quite the lengthy
track record as a high-performing asset. With populations exploding
around the globe, the scarcity of land is only going to increase. It’s a
bit more volatile than some of the assets on our list though, and the real
estate market is prone to bubbles. Just look back to when the last one
started to pop in 2006 to see the devastating effects.
Nonetheless, if you can avoid these relatively
rare yet severe dips or have the time and resources to ride them out, real
estate makes a great addition to an IRA. Just note that there are some
restrictions. The property you purchase can’t be a personal residence. It also
cannot be a second home, vacation home, or something you rent
occasionally. Also, remember that you can’t put property you already own
into an IRA, it must be a new purchase.
Rental properties can be particularly
lucrative, so if you’re thinking about adding real estate to your portfolio,
consider apartments or commercial buildings that you can lease to
tenants. Your baseline investment will be in something safe and tangible,
and you have the opportunity to profit every month via rent collection.
Cryptocurrency
By far the newest entry that we’ll cover,
cryptocurrencies have exploded in popularity over the past ten years.
Bitcoin is the undisputed king of the crypto markets, maintaining a roughly 70%
market share. It has made millionaires and even billionaires out of those that
were wise enough to invest early. Even if you only got in a few years
ago, then you’ve been holding onto an asset that has outperformed every single
one of its competitors.
When you step back and examine the technology
and advantages that crypto brings to its users, then it’s really no
surprise. The security is unmatched, with no computer on earth able to
break the encryption within. In fact, it would take a supercomputer a
mind-boggling 0.65 billion years to crack the hash of a single bitcoin address.
That’s only the tip of the iceberg as far as
benefits go. You’re provided 100% transparency but yet enjoy full discretion.
Middlemen and their fees are eliminated, Bitcoin is accessible from anywhere at
any time, and offers protection from third-party intervention or government
seizures.
If you feel like you’ve missed out on Bitcoin
already then don’t worry, it’s only just getting started.
As we’ve just seen, gold, real estate, and
cryptocurrencies are your best bets in terms of stability, protection, and
growth. But what about the rest of the alternative assets out there?
Perhaps you’re considering a purchase and are wondering if it’s
IRA-eligible? Let’s take a look at the most common assets you CAN’T
include in your IRA.
Want these in your IRA? Think again.
Derivative Positions
While stocks and mutual funds are just fine,
certain types of derivative positions are not. Particularly those with
unlimited or undefined risk, as the IRS forbids them. In general however,
you’ll find that most IRA custodians prohibit any type of derivative trading,
with the possible exception of covered call writing.
Considering their highly speculative and risky
nature, it makes sense why derivative positions aren’t allowed in something
that’s meant to provide stability.
Collectibles and Antiques
Perhaps you found a hidden gem at the flea
market and soon discover it’s worth thousands. Unfortunately, items like
these can’t be used with an IRA to guard against taxes if you choose to sell
and profit off them. This includes items like stamps, baseball cards,
silverware, comics, artwork, jewelry, porcelain, wine, and toys.
Artwork was actually permitted in IRAs
originally but was disallowed in the 1970s. At that time, more and more
art was being recovered after being stolen by the Nazis during the Second World
War. Because of this, the IRS wanted to be sure that IRAs couldn’t be
used to hide stolen artwork and thus prohibited it in general.
Life Insurance
Life insurance contracts are excluded from
IRAs. If you wanted to add a whole life, universal, term, or variable
policy then you’re out of luck.
There’s one exception for this, but it’s only
for qualified retirement plans. In that case, you are allowed to purchase
life insurance, but the amount must be “incidental” compared to the overall
value of the account. The IRS uses different percentages depending on the
type of life insurance, so you’ll have to check with them if it’s something you
want to pursue.
Choose Wisely
The benefits of portfolio diversification via
alternatives assets are plentiful. Your retirement accounts inherently
exist to provide you with security later in life, so it makes sense to invest
in safe assets that will see appreciation. The tax benefits of IRAs can
help you save significantly in the end, so they are always a smart choice. It’s
what you select for inclusion in your IRA that will make all the difference later
on. Choose wisely and you’ll be setting yourself up for the retirement
you’ve always dreamed about.
At Regal Assets we believe in providing you
with trusted and proven investment options. We take pride in the way we
do business and have enjoyed helping our clients grow their portfolios for over
a decade now. Our expert team members work side-by-side with you every
step of the way, so you can be sure that your assets are protected.
See for yourself what we can offer with our
FREE Investor’s Kit. It explains Regal’s IRS-approved investment options
and how they work. We’ll help you choose the right strategy to achieve
your goals.
Could The Coronavirus Trigger Global Recession?
If you’ve been
paying any attention to world news the past few months, you’ve no doubt heard
about the coronavirus. Not only can it take a fatal toll on it’s growing
list of victims, but its effects are starting to creep into the daily lives of
the general population. Throughout Asia, we’re starting to see increased
levels of quarantine, the cancellation of public gatherings like concerts or
sporting events, and negative economic impacts.
With the fears of a
global pandemic rapidly growing, so too does the apprehension of the
markets Could the coronavirus be what finally triggers a worldwide
recession? We’ve already seen the investors start to dump stocks and increase
their holdings of more stable assets like gold. Will it continue?
China: Ground Zero
It’s where it all
began. In Wuhan specifically, a metropolis of 11 million residents that
also serves as the capital to the Hubei province. It’s now less of a
bustling city and more of a ghost town thanks to the citywide quarantine in
effect. Wi Xi, a Wuhan native currently in the UK for schooling, explained how
the citizens “can’t walk, they can’t leave their own flat – it’s not a holiday,
it’s like jail. They are unable to even open windows for fear that the
virus will spread through the air.” Businesses are closed and manufacturing has
stalled. Considering that China is the backbone of the global supply chain,
it’s very bad news for companies all over the world.
As of mid-February,
the death toll has risen to almost two thousand. Many, however, believe
that the Chinese government has been hiding tens, if not hundreds of thousands
of additional instances
Unfortunately,
China’s containment efforts have so far been less than ideal. In fact,
Chris Meekins, a lead analyst for Raymond James, recently compared their
delayed response to that of the Soviet Union during the Chernobyl
disaster. Meekins said that after conversations with government officials
and other experts, the firm believes that “the worst is yet to come,” adding
that the “market is still underappreciating the potential dangers.”
The coronavirus
isn’t just impacting daily life in China, it’s starting to hurt the
economy. It’s bad timing to say the least. The nation saw significantly
slow growth during the second half of 2019, and overall the year marked the
lowest gross domestic product (GDP) increase since 1990. Even before the
outbreak, 2020 was already going to be a challenge thanks to China’s massive
amount of bad debt.
Enodo Economics estimates
that credit losses resulting from the virus will come out to around 20% of
their gross domestic product (GDP). Some have likened the impact to that
of SARS back in 2005. Diana Choyleva, the chief economist at Enodo Economics,
argues that “So when we then estimate what the impact’s going to be like…I
think it will be worse — we could easily get into a technical recession in
China in the first half of this year.”
The financial
worries are now creeping into the rest of Asia, with Tokyo, Hong Kong, and
Sydney all experiencing downturns. In particular, investors were spooked
by 52 new cases of the coronavirus in South Korea, reigniting worries that it’s
continuing to spread in Asia. The fear is also hitting Europe and the
United States as we speak. Even those that have traveled to China are being
quarantined, and isolated cases are starting to pop up all over.
With China, we’re
seeing that it’s already making a bad idea worse. If any other major
players fall, there could be a significant domino effect that reverberates
around the globe. So who else is most at risk?
Japan: All But Inevitable
While China’s slower
growth is bad enough, it could be worse. Japan’s economy has actually
been shrinking, falling 1.6% in Q4 of 2019. That’s the largest decline since
2014. The numbers were worse than expected, with some pain already being
anticipated as a result of a nationwide sales tax increase and the destruction
caused by Typhoon Hagibis.
Even before the
outbreak, a recession seemed all but inevitable for Japan. The government
took action in the form of a December stimulus package, worth around $120
billion, but the epidemic now looks likely to squash the slim hope there was of
recovery.
Germany: Flatlined
Germany hasn’t been
faring much better than Japan’s as of late. Similarly, the German economy
flatlined at the end of 2019, right before the coronavirus outbreak. Even
without the epidemic, 2020 was poised to be difficult. The final three months
of the year saw zero growth after experts predicted a slight rise.
Combine a weak manufacturing sector with the fact that Germany exports heavily
to China, and you have a recipe for recession.
We’re talking about
the world’s fourth-biggest economy and the largest in all of Europe, so the
knock-on effects could be huge. The eurozone GDP has been seeing stagnant
growth in general but seemed primed to turn a corner. That could all change
now. Claus Vistesen, the chief economist at Pantheon Macroeconomics, says “the
coronavirus now means that the first quarter could well be a write-off.”
Italy: Yet Again?
Italy has had its
fair share of economic trouble throughout the 2010s. They’ve shown signs
of rebounding though, with political stability currently at high levels, the
implementation of a public investment plan, and reformed income taxes.
Now with the coronavirus, they could suddenly be heading towards their fourth
recession in a little over a decade.
Italy is a major
destination for Chinese tourists, and the nation spends quite a bit on Italian
automobiles and luxury goods. China is also Italy’s third-largest
supplier, so the relationship goes both ways. As with Germany, an Italian
collapse could send shockwaves throughout the rest of Europe.
The U.S. – The Big One
The world’s largest
economy has kept chugging along, with only minor blips so far as a result of
the coronavirus. Early February saw stocks enjoy a multi-week winning
steak, but the end of the month brought them down to earth. This was led by
Apple, who warned shareholders that it will fall short of future revenue
forecasts. The reasons are something many companies may start
experiencing very soon: not only are there production delays and parts
shortages in China, but the stores that actually sell Apple products are
keeping their doors closed in response to the epidemic.
Several of the key
recessional signals are flashing red at the moment. The 30-year bond
yield hit an all-time low and the yield curve is narrowing. The price of
gold has seen some major increases as well, with investors flocking towards the
asset that is considered the single safest and most stable hedge against an
economic downturn. Late February saw the price smash through the $1,600
level and hit a 7-year high. It quickly rose to $1,650 at the time of writing,
with $1,700 squarely in its sights. That could only be the beginning if the
virus continues to spread, as many fear.
Gold prices have
been rising, but it’s not too late to get in at what is still a relatively low
level. Even if the coronavirus is eradicated, many of the world’s top
economies are still inching closer and closer to an inevitable recession.
By investing in gold, you’re not only protecting your portfolio from the
volatility of the markets, but you’re setting it up for significant future
growth, as well.
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