2021 Investment Outlook: What’s to Come for Alternative Investments and Self-Directed IRA Investors | Schwab - Millennium Trust Company

2021 Investment Outlook: What’s to Come for Alternative Investments and Self-Directed IRA Investors

February 8, 2021
By Millennium Trust
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We’re all excited (to say the least) to leave the dark foggy cloud from 2020 behind and enter sunnier days. Despite the many reasons to be optimistic about the year ahead, no one has a crystal ball that can predict what’s to come for investors.

Here are a few ideas to consider in 2021 as you review and adjust your investment strategy.

Think beyond the now.

The equity markets were nothing short of unpredictable in 2020, and even into 2021. In the first quarter, the S&P 500 experienced its fastest 30% drop ever.

Health care, information technology and internet retail (think Etsy) skyrocketed, while commercial real estate, airlines and leisure, and hospitality suffered. The S&P 500 ended on a high at the end of the year, but we have already seen unprecedented volatility so far this year.

Many of us tried to take 2020 day by day, but when it comes to portfolio strategy, there is a strong emphasis on utilizing a long-term strategy.

With a new administration, vaccine rollout, low interest rate environment, possible increase in inflation and potential additional stimulus, now is an ideal time to assess and align your investment goals.

Using Alternative Investments as a Barrier to Volatility

Yearly equity returns have been mostly positive, and investors have reaped the rewards of record stock market gains. But bull markets eventually turn bearish, and corrections and recessions can occur, too.

Investors may turn to alternative investments—like private equity or real estate—to generate portfolio growth and income. These alternative investments generally perform uncorrelated to equity markets.

Residential real estate, for example, had a successful year due to low mortgage rates. The increase in people moving to the suburbs, as well as companies like Airbnb and VRBO so far apparently withstanding the pandemic, may continue to present opportunity for investors.

While oil was down, many other commodities performed well in 2020, including silver and gold, with gold experiencing its largest yearly gain in a decade.

According to an early 2020 Preqin report, global alternative assets are on their way to exceeding $14 trillion by 2023. About 80% of institutional investors globally invest in alternatives, Preqin reported, illustrating the widely common strategy for institutional portfolio diversification.

Investor Access on the Upswing

Alternative assets have been made more widely available to individual investors in recent years thanks to enhanced digital capabilities and investor awareness.

Investors can maximize the potential benefit of investing in alternatives by doing so in a self-directed IRA. A self-directed IRA provides:

  • Full control over investment decisions in the account
  • Opportunity to diversify your portfolio with alternative investments
  • Tax-free growth of investments
  • Potential to qualify for yearly tax-deductions

In 2021, as investors seek out new ways to find risk and return profiles that are not correlated to traditional assets, alternative investments may be at the forefront of more investor-advisor conversations.

Alternative investments are not for everyone, so be sure to speak with your tax and financial advisor to understand what is right for you.

Main Takeaway

All in all, the effects of 2020 are likely to continue throughout 2021 and beyond, and may impact your long-term strategy.

Amid volatility and economic uncertainty, alternative investments have the potential to be a stock market and inflation hedge, or a source of income in a low interest rate environment.

Learn more about investing in alternatives in a self-directed IRA.

The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.

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