Alternative Investments are well known for their low market correlation and resiliency to bear market pressures. There is mass appeal to owning assets that don't ebb and flow with the markets. You know, that whole diversification thing.
The problem is that the vast majority of advisory firms are only in the business of offering your garden variety securities. Stocks, bonds, mutual funds, ETFs, etc. There's no button on a Bloomberg Terminal for "Hedge Fund" or "Private Placement."
That's where the Self-Directed IRA (SDIRA) comes into play. Like a traditional IRA, the SDIRA offers tax advantages that investors can use to build wealth for retirement. An SDIRA allows for a vast selection of traditional, non-traditional, and Alternative Investments that are not allowed in a Traditional IRA. Please see IRS.gov Publications 590-A & 590-B for further details.
What are some of the asset classes that could be picked for an SDIRA? There are many Alternative Investments from which to choose...
- Senior Life Settlements
- Real Estate
- Hedge Funds
- Private Equity
- Private Placements
- Precious Metals
- Private Corporate Debt
- Business Development Companies
... to name a few.
Now that these asset classes have been listed, you can see what is considered Alternative Investments vs. the “run of the mill” traditional assets. That’s the modus operandi of the SDIRA: it allows for flexibility to pursue these alternative asset classes such as real estate for retirement planning.
You may be saying to yourself, “Why haven’t I really heard of this whole SDIRA thing?” It wasn’t until recently that investors discovered the value of SDIRAS and the diversification it adds to investment portfolios. We’ve also been through an economic downturn or two in the past 45 years, which helped financial professionals discover the resiliency (through “that whole diversification thing” that I mentioned earlier) of utilizing SDIRAs in retirement investing.
Let’s go back to the bulleted listed of SDIRA investments. Senior Life Settlements are at the top of the above list because they have a particular use in hedging investment risk. Why? Before I start down that path, ask yourself what all the rest of the asset classes listed above have in common?
The answer is two or more risks per investment. Geopolitical events, market demand, supply issues, and other factors effect the stability and payout of each asset class. The investments also feature an open-ended time frame for maturating, leading to uncertainty for when the best time for “cashing out.”
Senior Life Settlements differ from these other investments by removing the guesswork for maturation and having only one risk: time. This asset class also provides a potential windfall for any eligible policy holder that is interested in selling a burdensome policy. Now I understand that ignorance of Senior Life Settlements or the unusual, even morbid aura surrounding this asset class may cause investors to look elsewhere, but that may be a costly decision. After all, $8.9 trillion—yes, trillion—in cash value life insurance was in play as recently as two years ago.
Now that you’ve had a primer of why Senior Life Settlements are a viable option for SDIRAs, you may be interested in learning more about this asset class. Remember earlier when I mentioned that Bloomberg has no button for Alternative Investments? At Capstone, we aim to make understanding Senior Life Settlements as easy as that Bloomberg Terminal button. To learn more about this asset class, contact Jason Bokina by scheduling a call or emailing contact@capaltstrategies.com.
