How Does a SDIRA Differ From Other IRAs?
The most prevalently-used individual retirement accounts (IRAs) are administered by fund managers, who direct investments on behalf of the owner in pre-approved publicly traded assets, such as stocks, bonds, and mutual funds. “Traditional” or “Roth” IRAs do not allow owners to pick and choose which assets to invest in, nor do they allow for investment in alternative asset classes. Plan owners are typically limited to indicating their risk tolerance level, and the administrator directs and diversifies investments accordingly.
With a SDIRA, plan owners retain all the same tax benefits as a Traditional or Roth IRA, but they are empowered to personally select which assets to invest in, including alternative investments such as private equity, real estate, and venture capital. SDIRA owners have more control over their own funds and investment decisions—and the flexibility to develop and diversify investment portfolios that are reflective of their values, knowledge, and financial goals.
Alternative Investments Go Mainstream
When the US JOBS Act was passed in 2012, its primary intent was to open access to private capital for startups as well as to enable retail investors to participate in the growth of the US economy through access to private markets that were once limited to institutions and high net worth individuals. Since then, investments in alternative asset classes have grown exponentially and novel technology platforms such as crowdfunding portals, cryptocurrency exchanges, non-fungible token (NTF) marketplaces, and other alternative trading systems (ATS) have emerged as interfaces for investors seeking out these markets.
In fact, investment in alternative asset classes has become one of the fast-growing fields in finance: The alternative investment industry is expected to grow 59 percent by 2023, reaching $14 trillion in assets under management, according to research firm Prequin.
SDIRAs and Alternative Investments
As alternative investments become more mainstream, and retail investors become savvier at taking control of their investment decisions, SDIRAs are yet another tool for investors to consider as they seek to participate in an increasingly diverse and continuously evolving investment landscape.