Investing

Unusual Ways Investors Are Contributing to Their IRAs Before April 15

7 Minute Read

With April 15th not too far down the road, some investors are looking for new places to invest before the tax-day deadline. And one investment that’s becoming more and more popular is alternative investments. 

There's a historical reason why this may be the case. Alternative assets have been known, in certain circumstances, to outpace the market in times of high inflation and volatility like we’re seeing now. In fact, one alternative asset, contemporary art, has outpaced the S&P 500 by 164% from 1995 to 2021. So it makes sense why both billionaires and celebrities alike are pouring money into alternatives like art. In fact, ultra-high-net-worth investors allocate 50% of their portfolios to alternative investments.

Due to changing regulations, investors can invest in blue chip art on a variety of platforms. They securitize million-dollar paintings and allow investors to buy fractional shares for as little as $20. And you can do so from within your self-directed IRA.

Other interesting alternatives include farmland and livestock. Back in 1986, Warren Buffett bought a 400-acre farm 50 miles north of Omaha for $280,000. Even though he knew nothing about farming at the time...he now says "28 years later, the farm has tripled its earnings and is worth five times or more than what I paid."

Farmland is an attractive investment because of its low volatility.

It also has a low correlation to other assets, and it’s a potential hedge against inflation. According to the USDA, farmland produced a positive return every year since 1991, with an average annual return of 11.5%.

Now, investors may think that purchasing farmland is too expensive, but with crowdfunding, it's possible to own farmland without the experience in the management of a working farm. And with the recent spike in food prices, investments like farmland are holding more appeal for some investors.  

Another alternative investment to consider is timber.

With a self-directed IRA, you can purchase trees to diversify your portfolio. What makes it so appealing is that reforestation is well-known as a hedge against inflation. Over the last 20 years, returns for timber as an entire asset class have been consistent with those produced by the S&P 500, in the 10-12% range.

Keep in mind that investing in lumber has a long investment horizon, as it can take 10 to 20 years before a harvest. And timberland has low liquidity as an investment. Unlike stocks, which can be sold in minutes, it takes time to find a buyer or to reap the rewards of a harvest. But it is an appealing investment for socially conscious investors seeking to diversify from other investments. An investment in reforestation provides a renewable, sustainable product that helps the environment. 

The Bottom Line

With tax day just ahead and inflation at 40-year highs, alternative assets are an option for investors looking to diversify their IRA, in the right circumstances. Alternatives offer a potential way to hedge against rising inflation and have been known to equal or outperform the market in general. They can offer a buffer against periods of high inflation and have historically shown to provide an alternative for wealth preservation in the current market.

 

This article was written by Alex Anderton from Benzinga and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.

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