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Dec 05 2014

Top 2 Reasons Investors Don’t Invest IRA Funds Into Alternative Investments

It is clear that in the past few years, investors have been showing an increased level of interest in learning more about alternative investments. They have also expressed a desire to increase their portfolio allocation into alternative investments. However, many investors feel like there are some hurdles they must overcome in order to invest capital into these investments.

Pensco Trust Company, a custodian which specializes in alternative investments, recently surveyed their clients to better understand their opinion of alternative investments. There were over 700 respondents to the survey. According to this survey, the top two reasons investors don’t invest more of their IRA capital into alternative investments are: Not fully understanding the range of assets included in the alternative investment category, and needing more access to alternative investments.

The results of the survey were very interesting:

  • 71% of the respondents replied that they would invest a greater percentage of their portfolio in alternative assets if they understood what types of assets were available to them in the alternative investment category.
  • 70% of the respondents replied that they would increase their allocation of alternative investments in their portfolio, if they had greater access to different types of alternative investments.
  • Portfolio diversification is the most important benefit of investing in alternative investments.
  • 33% of investors are not familiar with any detailed, reliable information about alternative investments.
  • 33% of investors were not aware that other opportunities to invest in alternative investments existed.

Understanding what types of alternative investments exist



The alternative investment category comprises a number of fragmented markets. Each asset class that could be characterized as an alternative investment has data associated with it, but rarely has it been compiled into one place. Therefore reliable data is often hard to come by regarding alternative investments as a whole. This recent survey is one of only a few reliable resources available to shed light into the alternative investment marketplace.

The size of the alternative investment marketplace cannot be easily measured. Whether this relates to the aggregate number of investment opportunities in total, or the number of asset classes which could be considered an alternative investments. This type of data is not easily obtainable. Some examples of assets which could be considered for the alternative investment category are: real estate (commercial, residential, industrial, raw land, farmland, timberland, airspace rights, fishing rights, and more), private mortgages, tax liens, oil and gas LPs, precious metals such as gold and silver, private businesses, franchises, intellectual property, and more.

Most alternative investments are not listed on a public exchange, so it is up to the investor, and/or their financial advisor to find appropriate alternative investments to fit their portfolio. This requires the investor to be diligent in their research, or they should find a financial advisor who has experience with alternative investments to help them locate appropriate investments for their portfolio.

Access to alternative investments

70% of investors in the survey said that they wanted greater access to alternative investments. This may be a misunderstanding on the part of those investors. Every investor has access to alternative investments, whether on a taxable basis or through their retirement account. Withstanding a few limitations when using IRA, access is not a limitation investors should be concerned about. However, locating these types of alternative investments could be a potential issue for some investors.

Currently there is no public exchange or marketplace where investors can find every type of alternative investment from a wide variety of sources and asset classes in one place. While there are enterprising companies such as: FNEX, Venovate, SecondMarket, and others who are attempting to aggregate specific types of alternative investments on to one platform, they are intentionally not set up to work with all types of alternative investments. These platforms are mainly focused on certain assets types such as: real estate, private company stock, non-traded REITs, private placements, and hedge fund limited partnerships.

I have recently spoken to a number of these companies about their future plans of expanding into other alternative assets such as tax liens, private mortgages, and other similar types of assets. Each one has stated that they do not have any intention to do so at the moment. This is understandable. They are looking to specialize. They have a focus on certain asset types, and “alternative investments” is just too broad of a category to encompass all alternative investments effectively in one central location.

This means that investors who are interested in specific alternative investments, must do most of their own research to locate suitable choices. Given the large amount of asset classes in the alternative investment category, investors should try to focus on certain areas which they know well.

What can you learn from this survey?

This survey shows us that providing education to investors is a very important step in allowing them to expand their investment choices and enhance their diversification. Custodians (who specialize in holding non-traded assets), alternative investment sponsors, and financial advisors should use this information to expand their education programs to more investors. This education will greatly improve the alternative investment market as a whole.

Investors or financial advisors who want to learn more about alternative investments and how to enhance the diversification of their portfolio can learn more at our website: Innovative Advisory Group.

Article by: Kirk Chisholm

Kirk Chisholm is a Wealth Manager and Principal at Innovative Advisory Group (IAG), an independent Registered Investment Advisor. His roles at IAG are co-chair of the Investment Committee and Head of the Traditional Investment Risk Management Group. His background and areas of focus are portfolio management and investment analysis in both the traditional and non-traditional investment markets. Kirk has an extensive understanding of the regulatory and financial considerations involved with investing alternative investments in self directed IRAs and 401ks. He received a BA degree in Economics from Trinity College in Hartford, CT. For more information on Kirk or Innovative Advisory Group you can visit www.innovativewealth.com

Disclaimer: This article is intended solely for informational purposes only, and in no manner intended to solicit any product or service. The opinions in this article are exclusively of the author(s) and may or may not reflect all those who are employed, either directly or indirectly or affiliated with Innovative Advisory Group, LLC.


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