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Pacific Premier Trust Blog

Fresh alternative asset insights and the latest news on real estate and private equity investing.

Investing in Real Assets? Consider Owning Them in Your IRA


  |  By Christopher Orr, CISP®, SDIP

As we've discussed in other PENSCO blog posts, alternative assets are going mainstream, and real assets—tangible assets such as real estate, infrastructure and natural resources—are included in this growing alternative investment universe.

Part of the appeal of real assets is their ability to add diversification to a portfolio. Real assets do not tend to move in lock-step with the stock and bond markets’ ups and downs. This may help to hedge against downside risk when the stock market falls while also potentially reducing overall portfolio volatility.

As an example, direct real estate[1] has shown a correlation of 0.23 with US stocks and a negative correlation with bonds.[2] These correlation figures mean direct real estate shows little tendency to move in the same direction as stocks and the tendency to move in the opposite direction of bonds. Also, real assets like real estate and commodities demonstrate attractive inflation hedging properties over long horizons. [3]

This chart from Preqin captures why many institutional investors are investing in real assets and displays their targeted annualized returns.

Source: Preqin Investor Outlook: Alternative Assets H2 2017

Another lure of real assets is that they are often physical assets, like precious metals or agricultural land that can be seen and touched. For some, owning a physical entity provides more comfort than holding a mutual fund or stock that is subject to the whims of the latest news headline, earnings season, tweet or shifting investor sentiment.

Real Assets and Liquidity

When deciding on an investment, it's important to understand its liquidity. You can typically buy and sell stocks, bonds and mutual funds on a daily basis. For the most part, these exchange-traded investments can be sold quickly, making them liquid investments that can easily be converted into cash.

The same is not true for real assets. Real assets do not always have a straightforward exit strategy (like being sold on an exchange), and they can require more time and effort to be converted into cash. This makes them illiquid assets.

Investing in these illiquid assets is one way they provide diversification away from the day-to-day gyrations of the stock and bond market. It's also a reason they may be well suited to be held in an IRA.

Investing in Real Assets in Your IRA

Retirement accounts are designed for longer-term horizons, and they represent savings that, unless you are already retired, do not need to be accessed immediately. This may make them a good place for diversifying your overall portfolio by owning an illiquid real asset.

Self-directed IRAs allow retirement savers to own real assets, such as infrastructure or land. By working with a self-directed IRA custodian, like PENSCO, you can use your retirement dollars to invest in real estate, precious metals or commodities—real assets that are not necessarily traded on an exchange.

In addition, IRAs offer tax benefits. Holdings in a traditional IRA can compound year after year on a tax-deferred basis. If savings are held in a Roth IRA, account growth may accumulate tax free. Investors can also face penalties if they take withdrawals from a traditional IRA before turning 59½, meaning many investors favor holding longer-term investments in these retirement portfolios.

Real assets need to be carefully reviewed, ideally with the help of a financial advisor, before being incorporated into a portfolio. But understanding what real assets are and the role they can play in a portfolio may help improve the risk and return characteristics of your portfolio—allowing real assets to complement to your traditional investments.

If you are investing for the future and short-term access to cash isn't an issue, owning real assets in your self-directed IRA may be an attractive option. If you have questions about holding real assets in your PENSCO self-directed IRA, contact us at 800.962.4238.

[1] Direct real estate is defined as a private investment in institutional-quality commercial property.

[2]"Target-date funds: Improving diversification with direct real estate," TIAA, Spring 2017

[3]"Inflation-Hedging Properties of Real Assets and Implications for Asset-Liability Management Decisions," by Noel Amenc, Lionel Martellini and Volker Ziemann, EDHEC Risk and Asset Management Research Centre, 



This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

Pacific Premier Trust (formerly PENSCO Trust Company) performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Pacific Premier Trust is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.