Traditional vs Alternative Investments
There are many different options available to help you save for your retirement. Whether you plan to go a more traditional route, or you want to take control of your own account, it’s important to explore all options available to you. If you are considering opening an IRA, depending on the route you choose, you could have many different investment opportunities.
Selecting a traditional IRA can leave you with fewer options than an SDIRA, which has the benefit of alternative assets. Portfolio management can be difficult if you do not perform your due diligence. Before investing, it’s a good idea to explore the differences between traditional and alternative assets.
Traditional Investment Options
If you are interested in taking the path to traditional investment, there are three options open to you. You can invest in treasury, bonds, or take your turn in the stock market. There are benefits to investing in these traditional assets, and if you are new to investing, this is a great place to start building your portfolio.
Traditional investments have lower minimum qualifications and a highly liquid profile. The fee to invest is much lower, since they are more common and have been around for many years. Investors can redeem their funds almost immediately should they choose. Traditional assets are traded and invested in a public market. This adds a level of security, since these options are heavily regulated.
Traditional assets have high correlation and passive shareholders. The market has ebbs and flows, but while the market is consistent, there is a lower return on investment. Cash and bonds are safe investments, while the stock market can be risky. With the right investing strategies, the assets can prove to be beneficial for steady cash flow depending on how you allocate your funds.
Pros and Cons
While the more traditional assets can prove to be more secure and steady, there is a lower payout. While there is liquidity to these investments, an account holder can suffer if there is a drop in the market. While this doesn’t affect all traditional investments, it could hurt your long-term account growth. Additionally, your options are very limited. If you are just getting started, or are unsure about alternative assets, traditional investing is a very good option.
Alternative Asset Investment Options
The benefit of alternative investing is the options available to you. Account holders can explore the real estate market, hedge funds, private lending, or invest in precious metals. There is a mix of physical collateral and risky new ventures, which could have a high return on investment. The downfall, however, is the lack of liquidity in some of the asset options. Traditional investors can have a quick turnaround and acquire the funds from their assets. This isn’t always true for alternative investors, especially if the investment is in property or a loan.
With a broad range of investment options, account holders can easily become overwhelmed. They could spread their funds too thin, take too many risks, and sink their savings into a failed investment. The key to good long-term investment with alternative assets is portfolio management.
Alternative investments also run higher than some can afford. Involving both private and public markets, the fees and management can be pricey, especially in the case of hedge funds. While an investor can access mutual funds and ETFs (exchange-traded funds) to help ease the financial blow, many of the assets carry a high price tag that some may not be able to achieve. However, if you can manage to set up your account successfully, alternative assets have high returns on investment.
Pros and Cons
Depending on your portfolio management, alternative assets can add substantial wealth to your retirement account. If you can afford the management fees and put forth the funds for your investment, you can accumulate a steady cash flow. Unfortunately, the regulation of alternative assets is not as rigid across all of the possible markets. This leaves many potential investors open to fraud if they do not perform their due diligence.
Additionally, markets can be unpredictable. Some of the investment opportunities, such as cryptocurrency or real estate, can have a fluctuating market. Also, there is no quick way to redeem your assets depending on what you choose. Consider all of you options before making any investment decisions.
Choosing Investments Right for You
After going over the pros and cons of both traditional and alternative assets, a solid choice would be to combine the efforts into one well-rounded portfolio. A mix of steady and high-risk investments can push cash flow and build a comfortable nest egg for your future. Using both assets in your portfolio can accumulate a higher net worth, while reaping the benefits they each have to offer. The best investment strategy is to remain vigilant and explore what the financial world can do for you and your future. Contact Horizon Trust today for a free consultation.