Note: KingsCrowd supports the democratization of investing. And a key part of that process is making it easier for people to fund their investments. That’s why we’ve partnered with AltoIRA. They’re bringing a much needed service that combines retirement savings with startup investing. So we asked them to write this piece explaining how it works (and offering a special discount to KingsCrowd members).

Diversification Matters

Most Americans hold their investable assets in their retirement accounts. However, public markets offer insufficient portfolio diversification, leading to higher volatility. This insufficiency can lead to financial insecurity and lower returns.

What’s one way to offset that risk?

Alternative investments like private equity, hedge funds, real estate, and securitized art can reduce volatility, while often maximizing returns. But many people are not able to direct their retirement savings into these higher yielding investments.

So how can an investor access alternative assets? Let’s find out. 

The Benefits of Opening an IRA

An Individual Retirement Account (IRA) is a tax-advantaged savings account set up and held by a financial institution. Being tax-advantaged means that any returns an investor receives aren’t taxed and can thus be fully reinvested. This gives an individual the ability to maximize the returns on their retirement savings and grow them much faster than would be possible with a normal, taxable account.

Depending on the type of IRA, these advantages can be tax-free or tax-deferred.

  • Traditional IRA: Pre-tax contributions yield earnings that can grow tax-deferred until funds are withdrawn in retirement.
  • Roth IRA: After-tax contributions yield earnings that could grow tax-free. Withdrawals in retirement can be tax-free if certain criteria are met. 

Investing in Alternatives With A Self-Directed IRA 

A less well-known type of IRA is a self-directed IRA. This IRA allows for greater diversification through the inclusion of alternative assets. Investing in alternative assets through a tax-advantaged IRA allows the investor to benefit from both duration matching and compounding returns:

  • Duration matching: The timeline of investing in an illiquid alternative investment aligns with the timeline of saving for retirement. This means an investor has ample time to let their investment grow. Investors who use their IRAs to invest in alternative assets will enjoy the “illiquidity premium” that those long-term assets pay, while avoiding the short-term swings associated with stocks and bonds — whose movements follow public markets closely.
  • Compounding returns: Gains from investments are able to be reinvested fully and without tax. This means that alternative investments that generate returns are likely to result in even larger returns if successfully reinvested — and if funded with a Roth IRA, these compounded gains are entirely tax-free.

Unlock the Power of Retirement Investing

While self-directed IRA funds can be invested into alternatives, many custodians do not enable their investors to do so. And those that do tend to be incredibly costly and time intensive. That’s where AltoIRA comes in.

Launched in Nashville in 2018, AltoIRA is a fintech company that helps individuals access and execute investments in alternative assets using their retirement savings. Alto’s mission is to give investors the tools and resources they need to build the financial futures they want. 

Alto is unique, in that it provides:

  • Access: Alto’s two-sided platform makes it easy for investors to access their retirement savings and invest in alternative assets across its 21+ investment partners.
  • Value: With Alto, you can maximize your long-term investments as they grow. That’s because Alto doesn’t believe in hidden charges or investment minimums. They work hard to offer the most competitive pricing in the industry. 
  • Empowerment: Alto is available to both accredited and non-accredited investors. This accessibility helps position individuals to save for the retirements they want.

Invest Today 

If you want to take advantage of the combined benefits of IRA ownership and startup investing, there are three steps you need to take.

Step 1: Open an Alto account here. 

Step 2: Fund your account.

Step 3: Explore Alto’s 20+ investment partners and choose a deal. Once you find an offering you’d like to invest in, simply select Alto or IRA as the investment payment method and complete your transaction with an e-signature on Alto’s site. 

Alto Solutions, Inc. (Alto) is an administrator of AltoIRA individual retirement plans and self-directed individual retirement accounts (SD-IRAs). Alto is not a registered or licensed broker, dealer, broker-dealer, funding portal, investment advisor or investment manager in the United States or elsewhere, and does not provide legal, accounting or tax advice. No communication by Alto should be construed as a recommendation, solicitation or offer to buy any security offering, investment or asset. Investors should consult with their tax or financial professional, and fully understand and be willing to accept the risks associated with alternative investments and the management of SD-IRAs. Alto is a registered trademark of Alto Solutions, Inc. All rights reserved.