Recent reports are somewhat troubling on the relationship between stocks and bonds and the health of your retirement portfolio. Typically, the two asset types offset each other. When the stock market takes a dive, bonds have historically rallied. The perfect mix of stocks and bonds offers protection as gains on bonds somewhat balance out losses on the market. Holding these traditional assets in your retirement plan has in the past presented a fair strategy for success.
However, according to an article published by the New York Times, there are “signs of strain in the stock and bond love affair.” That quote is actually the title of the article, and it’s well worth the read—especially if you are counting on the relationship between the two assets to help you reach your retirement goals.
In short, the article points out that on September 9, 2016, the stock market tumbled to the tune of 2.45 percent. But, bonds did not respond in kind by rallying. Instead, the article states, “…the average core bond portfolio tracked by Morningstar dipped 0.34 percent that day. The one-day loss for many funds, including Vanguard Total Bond Market, iShares Core U.S. Aggregate Bond, Pimco Total Return and Metropolitan West Total Return, while less than a half a percentage point, still amounted to more than 10 percent of their current yield.”
So, what does this mean for your retirement portfolio health if you’re relying on bonds to cushion your stock falls? The writer of the NYT article and other experts suggest the relationship between bonds buffering stock losses may very well be changing and that, in light of the potential of the 10-year treasury yield rising, you can probably expect bond prices to decrease.
While this is no reason for widespread panic because no one can predict the future, this position is fully explained in the aforementioned article. Again, it’s worth the read because we’re not going to cover all the complexities in our article. Instead, we are going to provide some options that—in any situation—can add diversity and a potential buffer to losses on the stock market.
Alternative Investments for Your Retirement Portfolio Health
There are alternatives to stocks and bonds that you can use to further diversify and offset potential losses incurred by other assets. Clients of Midland invest in many alternative investments using self-directed IRAs to do exactly that. We all agree that diversity is key to the success of any investing portfolio—and no one is saying to abandon stocks and bonds. In fact, these traditional assets can also be held in self-directed retirement plans. But, you don’t want to be totally invested in one thing or another. In other words, as they say, don’t bet the farm or put all your eggs in one basket. That’s why diversity is critical.
You can achieve true diversity by using self-directed IRAs to acquire alternative assets to boost your retirement income-earning potential. Self-directed retirement plans allow plan owners the freedom to invest—to choose their own assets to build income in their portfolios.
Alternative investments include, but are not limited to the following:
- Real estate
- Farm land and timberland
- Private notes and mortgages
- Precious metals
- Private equity
- Private stock
- LLCs and trusts
- Futures and forex trading
- Crowdfunding options
- Oil, gas, and mineral rights
- …and so much more
There are so many diverse assets that fit into the “alternatives” class that the IRS does not even list them. Instead, they provide a short list of assets not permissible: life insurance contracts and collectibles. Other than those two things as defined in the rules and regulations that govern retirement plans, you can invest in just about anything that you think will help you build income for your later years in life.
Midland IRA is a self-directed retirement plan administrator serving clients across the nation who hold over $2 billion in assets. Our team has decades of experience in the industry, and we are eager to help our clients and other investors learn about the power of self-direction.
If you would like to learn more about self-directed IRAs, please contact us today! Visit our event calendar to find a listing of free events and webinars designed to increase your knowledge of these plans and investments allowed in them.