With market volatility picking up as stocks hover near record highs, at least one platform is hoping to tap into investor fears by offering direct access to alternative investments in retirement accounts.
Nashville, Tenn.-based Alto Solutions is targeting individual investors and financial advisers with the promise of diversification through access to alternative investments, with minimum investments starting around $100.
The platform, which requires investors to open individual retirement accounts through Alto, can offer access to alternatives thanks to the Securities and Exchange Commission's crowd-funding regulations.
Once investors open an IRA, the platform gives them access to alternatives such as private startup companies, private equity, venture capital, digital currencies and real estate through partner firms including AngelList, Groundfloor, Republic, Silicon Prairie, Wefunder, and YieldStreet.
Alto, which this week received $5.4 million in venture capital money to help expand the business, is ramping up at the right time.
"The past decade of strong equity and bond market gains have made it harder to justify including a meaningful stake in alternatives for diversification purposes," said Todd Rosenbluth, director mutual fund and ETF research at CFRA. "But efforts to make them easier to invest in, supporting a longer goal such as retirement could help spur usage."
According to the Investment Company Institute, Americans have more than $28 trillion of assets in retirement accounts, including $9 trillion in IRAs.
While Americans have always been allowed to invest in alternative assets with an IRA, only about 1% of IRA assets are invested that way as a result of the complexities in the paperwork and processes required to set them up and execute transactions, according to Alto.
A company spokesman said Alto's streamlined system uses automated technology to distill the process to its simplest form, making it easier and much less expensive for both investors and those raising capital, also known as issuers.
According to Alto's website, fees start at $9 for investments up to $2,500 and climb to $199 for investments exceeding $50,000.
Vance Barse, wealth strategist at Manning Wealth Management, acknowledged the appeal of such a platform, but stressed the importance of due diligence and suitability.
"Some alternative investment strategies are quite sophisticated and may be too advanced for the common IRA investor to fully understand," he said. "From a planning standpoint, investors who allocate retirement assets to illiquid alternative investments should consider their required minimum distributions, because you will need to keep enough liquidity to satisfy the distribution requirements if the investors are getting close to 70.5 years old.
"There's also some tax-advantaged potential of investing in alternatives in an IRA, but if you sell at a loss you can't use that for tax purposes because it's inside a qualified account," Mr. Barse added.
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