What Are Alternative Assets?

What Are Alternative Assets?


Written by John Rothans

Jul 24, 2020

Are you stuck in the same old rut of adding stocks and bonds to your retirement portfolio? It might be time to learn about another asset category—alternative assets. We explain what they are, how they’re different from traditional assets, and how you can work them into your retirement portfolio for greater diversification.

What Are Alternative Assets?

Alternative assets encompass assets other than cash, stocks, and bonds. These alternatives can be tangible assets or financial assets. Either way, they’re designed to boost your portfolio by offering additional diversification and, in many cases, a hedge against inflation.

According to the Corporate Finance Institute, alternative assets tend to show a low correlation with traditional assets, including stocks and bonds. Also, alternative assets are subject to different government regulations than traditional assets.

Some experts recommend that portfolios have a 10 to 25% allocation in alternative assets.

Alternative asset allocation “won’t move the needle at 1% or 2%,” David Lebovitz, a global market strategist for J.P. Morgan Asset Management’s Global Market Insights Strategy Team, told CNBC. “You want it to have a direct impact on the overall pool of assets.”

What Are Alternative Asset Classes?

Alternative assets fall into two categories: tangible assets and financial (or intangible) assets.

Alternative tangible assets include:

  • precious metals
  • real estate
  • artwork
  • wine
  • antiques
  • postage stamps
  • classic cars
  • baseball cards
  • agricultural products
  • livestock
  • oil
  • natural gas
  • industrial metals

Alternative financial (intangible) assets include:

  • cryptocurrency
  • insurance policies
  • foreign currency

Real estate once dominated the realm of alternative assets, according to FTAdviser.com. But the range of alternative assets recently has expanded in size, breadth, and depth.

“For many years, alternatives were the preserve of institutional or high-net-worth [asset holders], but they are now moving into the retail mainstream, as individuals, confronted with volatile financial markets and retirement savings gaps, seek different sources of income and returns,” FTAdviser notes.

What Types of Retirement Accounts Allow Alternative Assets?

Self-directed retirement accounts allow a variety of alternative assets to be kept in the account as means of portfolio diversification. These accounts include the traditional IRA, Roth IRA, simplified employee pension (SEP) IRA, and solo 401(k).

However, some alternative assets are prohibited from being included in self-directed accounts. For instance, a life insurance policy is not permitted in an IRA, and collectibles like antiques, artwork, and wine are not permitted in any self-directed retirement account.

Fortunately, a Self-Directed IRA—either a traditional or Roth IRA—does permit someone own precious metals like gold and silver in the form of coins and bars. With a Self-Directed Precious Metals IRA, a custodian purchases gold and silver (from a provider like U.S. Money Reserve) on the account holder’s behalf. The account holder decides on the amount and selects the precious metals that the custodian buys. The purchased gold and silver are then held in an IRS-approved depository.

Forbes describes precious metals as “one of the most useful alternative asset classes for [people] looking to reduce their exposure to stock market volatility. Precious metals such as gold and silver are physically scarce, chemically unique, and useful for industrial applications. For these reasons, they’re an excellent long-term store of [wealth].”

Do your retirement plans include diversification with alternative assets? Learn what precious metals can bring to the retirement table when added to your wealth portfolio through a Self-Directed Precious Metals IRA. Call U.S. Money Reserve today for a one-on-one consultation.


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