It's time to rethink investing for retirement

Portfolio diversification and the potential for outsized gains are just a few reasons to invest in alternatives.

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For years, everyday investors were largely confined to a 60/40 portfolio-meaning roughly 60% stocks and 40% bonds, depending on a person’s age and risk appetite. This strategy delivered fairly predictable returns.

However, times change. Even against the backdrop of 2021’s epic bull run, legendary investors and money managers were sounding alarm bells on the future of retirement, including how much Americans need to retire and whether the old ways of saving for retirement will cut it.

We’ve all heard of savvy investors who bought Microsoft or Apple stocks before they became the behemoths they are today, but what a lot of people don’t realize is that fewer of these opportunities exist today.

Companies aren’t just waiting longer to go public; many are choosing to stay private. In fact, there are about half as many publicly traded companies today as there were in the mid-1990s. This means fewer public market opportunities, particularly for retail investors to buy up-and-comer stocks during their hyper-growth phase.

Fortunately, Americans have more opportunities than ever to diversify their investments, potentially increase their risk-adjusted returns, and-who knows-maybe just invest in the next big thing.

While most of us were limited to public market investments, like stocks, bonds, mutual funds, and ETFs, institutional investors have been making good use of the potential for outsized returns available with alternative assets.

Yale University’s famed endowment fund, which has for years boasted returns greatly exceeding those of the S&P 500, is a shining example of this diversification strategy.

Under the directorship of investing legend David Swensen, the endowment shifted its portfolio allocation strategy from one of mostly equities to one largely composed of alternative investments. He reasoned that endowments invest for the long-term and therefore have little need to make a quick profit, making them a perfect vehicle for investing in alternatives, many of which are illiquid until maturation.

It’s for this same reason that savvy investors are increasingly looking to self-directed IRAs to invest in alternative assets like private equity, venture capital, and real estate. While custodians like Alto are helping to streamline once-complicated investment processes, IRAs-which can’t be cashed out until at least 59-1/2 years of age without penalty-are a natural fit for the longer durations of alternative investments.

What’s more, with many Americans’ investable capital locked up in retirement accounts, investing in alternatives with an IRA gives them access to funds otherwise not available to them.

Now, you can allocate a portion of your portfolio to assets whose returns are uncorrelated with public markets, just like ultra-wealthy and institutional investors.

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