September 29, 2020

Clients ready to listen to advisers on alternative investments

alternate IRA investmentsAdvisers who may still fear a client’s look of horror for recommending alternative IRA investments should take note of these survey results — investors are ready to listen.

About 72% of investors would consider alternative IRA investments if their adviser recommended them — up from 35% a year ago and a giant leap from 19% in 2011, a Natixis Global Asset Management SA survey found. About 43% said they already are willing to invest in alternatives.

Education will be key, as 85% of investors said they would invest in alternative IRA investments with self directed IRAs if they understood them better, according to the survey, which sampled investors with at least $200,000 in assets. The survey, released Tuesday, included 750 U.S. investors as part of a global survey of 5,650 investors from 14 countries.

“Advisers sometimes think they can’t bring alternatives to the discussion,” said Matthew Coldren, executive vice president of Natixis. “But there’s increasingly an openness from investors to learning more about alternative strategies.”

Most investors, about 61%, said they don’t believe that traditional stock-and-bond portfolios are the best way to manage investments and go after returns, according to the survey.

In fact, about 28% of investors said they plan to increase their alternative IRA investments in real estate over the next 12 months, 28% in gold and other precious metals, 22% in alternative mutual funds and 20% in private equity, the survey found. About 25% plan to increase their U.S. stock allocation.

The largest planned shift in allocations, however, was from about 36% of investors who plan to increase the amount of their portfolios that are in cash over the next year.

Almost all investors, 86%, pay attention to the overall risk in their portfolios, and 82% try to measure their investments’ risk, the survey found.

“It’s encouraging to see a strong focus on risk,” said John Hailer, chief executive of Natixis in the Americas and Asia. “We know from recent history that when investors are focused on growing assets without understanding the risks involved, it’s a recipe for disaster.”

The survey also found that about half of these investors don’t have a financial plan to help them achieve their goals — a figure that has been steady during the past four years of the Natixis survey, Mr. Coldren said. And about 45% of investors said they don’t have clear financial goals.

IRAs: They’re Not Just for Stocks, Bonds, and Funds

self directed ira rules yes


A friend is offering me the chance to invest in his start-up business. Am I able to do so using the funds in my IRA? How would I do that within the self directed IRA rules?


Mention an IRA, and most investors probably think of a long-term savings vehicle that holds only securities such as stocks, bonds, and mutual funds. But the IRA wrapper also can be applied to many other investment types, including real estate, precious metals, and equity in privately held companies, such as what you are proposing.

The vast majority of IRA assets are invested in the regulated securities with which most investors are familiar, typically through banks, brokerages, or fund companies. But a small segment–estimated at about 2% of all IRA assets–are held in so-called self-directed IRAs, which may be established through a custodian or trustee and which can encompass a much broader range of investment types. There are certain self Directed IRA rules to follow and we can help facilitate the creation.

What You Can and Can’t Invest In According to Self Directed IRA Rules

Tom Anderson, president of the Retirement Industry Trust Association, a trade group representing the self-directed retirement-plan industry, says that about 40% of the $50 billion in assets that the group’s members manage is held in real estate–everything from income-producing properties to time-shares to co-ops. In fact, self-directed IRAs can be invested in just about anything with a few exceptions. Among these are collectibles, so forget about putting that Picasso original or ’57 Chevy in your IRA. Life insurance also may not be put inside a self-directed IRA, nor can stock in an “S” corporation, which is a special type of corporate structure in which taxable income is passed on to shareholders. (The Internal Revenue Service bans these from non-self-directed IRAs, as well.)

Holding assets such as real estate or private equity within the IRA wrapper means enjoying tax-free growth and compounding, just as it does with stocks, bonds, and funds. A self-directed IRA also may use the traditional, Roth, or SEP IRA format, meaning that you could get a tax break during the contribution or distribution phase. For example, if you used money from a self-directed Roth IRA to invest in a rental property, not only would income be added to the account tax-free, but any proceeds from sale of the property would be tax-free, as well (once the account holder turned 59 1/2).

Self Directed IRA Rules Against Self-Dealing

Because they can hold such a wide array of asset types, self-directed IRAs tend to appeal to investors looking to diversify their retirement holdings and reduce correlation with stocks. The self-directed IRA is often used to complement, rather than replace, a more traditional IRA invested in stocks, bonds, and mutual funds. “Most of these IRAs are created as a result of someone working for 15-20 years, changing jobs, and rolling over [a piece of] their 401(k) into a self-directed IRA,” Anderson says.

The rules governing self-directed IRAs can be tricky, however, so make sure you understand them before opening an account. For example, there are strict rules against so-called self-dealing, which means that IRA money may not be used to invest in a property that the account holder or a direct family member will use. Thus, buying a vacation home with an IRA and using it for trips with the kids or grandkids is not allowed. That’s because the Internal Revenue Service requires that the investment be for the benefit of the IRA account exclusively–in other words, that its sole purpose is to potentially help the account increase in value as opposed to any ancillary benefit to the account holder or his family.

The rules regarding the use of self-directed IRAs for privately owned business investments are even murkier. For example, if the self-directed IRA is invested in a business wholly owned by the account holder, that account holder is not allowed to draw a salary from the business. Also, even though self-directed IRA funds can be used to start a business, they cannot be used to purchase equity in an existing business that is already 50% or more owned by you and/or other direct family members including spouses. Given the complexity of these rules, Anderson recommends that self-directed IRA users considering these or related strategies consult with a registered self-directed IRA custodian and/or an attorney well-versed on the topic to ensure these strategies don’t run afoul of tax laws. (You can read more about some of these IRA restrictions on the IRS website.)

Lack of Transparency and a Potential for Fraud
Among the potential problems with holding alternative assets in a self-directed IRA is that the assets may be illiquid, making them harder to sell. That also might make assessing their true value difficult. In a 2011 alert about potential fraud in self-directed IRAs, the SEC warned that self-directed IRA custodians may list the value of an alternative investment as the original purchase price or a price reported by the entity running the investment, neither of which may be accurate.

The alert also pointed to the fact that self-directed IRAs may hold unregistered securities, which can serve as an invitation to fraud, and Ponzi schemes in particular. In one such case, the agency helped shut down a firm that had raised $20 million in assets from retirees in California and Illinois who were persuaded to open self-directed IRAs and told their money would be invested in Turkish eurobonds with guaranteed returns when in fact it was used as part of an alleged Ponzi scheme.

Before opening a self-directed IRA, you should think long and hard about whether it’s the right choice for you. If you plan to invest funds in unregulated securities it’s always best to get a second opinion from a trusted source such as your financial advisor if you have one. Aside from that, you’ll need to keep in mind considerations such as fees charged by the custodian (Anderson says RITA members typically charge between 0.20% and 0.40% of assets), how accessible the money will be if you need access to it in a hurry, and other factors. You can read more about these important considerations in this article by Morningstar’s Christine Benz.

A self-directed IRA can be an effective way to add diversification to your retirement portfolio, especially for wealthier investors concerned about having too many of their assets correlated to the stock market. But it’s a strategy that takes careful planning and, most of all, due diligence to keep within the self directed IRA rules.


IRACheckbook Lifts AA Pilots Investment Opportunities

Pilots Investment Opportunities

Pilots Investment opportunitiesAmerican Airlines pilots investment opportunities soar with IRACheckbook, a facilitator of self-directed retirement funds located in Charleston, S.C. IRAcheckbook is working hard to help the pilots of American Airlines realize all of the benefits out there in investment, even during these turbulent times. It all started With the possible merger with US Airways as reported by the Washington Post on February 13th of this year and the termination of the B -Plan , whose default was first reported on February 2nd of last year by Reuters, as a part of American Airlines’ restructuring program, many American Airlines pilots are looking to gain back control.

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The Dos and Don’ts of IRA Investing

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Charleston entrepreneurs Kip Bowman and Jeff Beall are among the people who believe that scenario is already playing out. Rather than just talking about it, though, they decided to act and created a retirement tool to help.

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The Plow Horse Rolls On

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Rand: Invest in Charleston, S.C., and Grand Rapids, Mich.

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