February 12, 2021
2021 Outlook: 5 Factors for Self-Directed IRA Investors to Watch
By: Pacific Premier Trust
2020 was a challenging year for retirement savers. As the COVID-19 pandemic shuttered economies, many investors faced sudden and unexpected financial hardships that forced then to dip into their retirement savings. According to a Kiplinger-Personal Capital poll, nearly 60% of Americans withdrew or borrowed money from an IRA or 401(k), while 63% used those retirement savings to cover basic living expenses.
While we’ve entered a new year, pandemic-related disruptions are not behind us and the 2021 outlook remains unclear. The US labor market recovery has stalled, household spending is faltering, and US COVID-19 cases continue to surge. But many economists and investment strategists believe COVID-19 vaccines represent a light at the end of the tunnel that could “unleash a hobbled US economy and spur growth” in 2021.
For retirement investors who use self-directed IRAs to invest in alternative assets, here are five factors to watch in 2021.
1. Alternative assets will continue to gain traction: In April, shortly after the coronavirus triggered shelter-in-place orders, a Preqin investor survey found that 59% of investors intended to “slightly” or “significantly” reduce their 2020 commitments to alternative investments. But these were only intended to be short-term changes in response to the pandemic. Sixty-three percent of respondents said they did not anticipate any long-term impact on their future alternative investment strategy, while 29% expected to divert more capital toward alternatives in the long run.
Despite COVID-19, investors remain bullish on alternatives. Preqin expects global alternative assets under management to jump by 60%—equal to a CAGR of 9.8%—between the end of 2020 and the end of 2025. That growth rate should outpace global GDP and inflation, Preqin noted, with significant real appreciation across the alternative asset space.
2. Private equity may see a record year: Given ultra-low interest rates, worries over a stock market bubble, and uncertainty over COVID-19, investors are seeking to diversify their retirement portfolios in search of income and returns. One area that should benefit from these trends: Private equity.
Preqin estimates that global private equity assets under management will grow by 15.6% per year, while PitchBook’s 2021 outlook predicts this year will set a record for private equity fundraising, surpassing the $316.9 billion high-water mark set in 2019.
According to PitchBook, a financial data company, private markets rebounded faster than expected in 2020, indicating that institutional investors’ decade-long pivot toward alternatives will remain intact in 2021. But the data company cautioned that the overhang of the pandemic could prompt some investors to conserve cash and avoid high-risk opportunities.
3. Housing market returns to normal: Investing in real estate—particularly single-family homes—is a popular strategy among our self-directed IRA clients. Many of them keep a close eye on the U.S. housing market, which was far from normal in 2020.
Shelter-in-place orders issued at the start of spring, when sellers typically list their homes for sale, threw a wrench in the most important selling season of the year. As a result of lockdowns, Realtor.com said home buyers vastly outpaced home sellers, creating a frenzy that pushed sales numbers to decade highs while time-on-market dropped to new lows.
But Realtor.com’s 2021 outlook calls for the housing market to return to a more normal pattern of business. Buyers should find a much more welcoming market, it said, thanks to an increased number of sellers and an increase in new construction. Ongoing remote and flexible work arrangements mean the inner and outer suburbs and smaller towns will attract home buyers and builders. Areas that can ramp up affordable housing supply could see an influx of buyers.
But their 2021 outlook comes with some wildcards. Realtor.com warned of a potential double-dip recession, where “would-be" buyers may disappear from the market as the gap widens between those with and without jobs. On the other hand, a successful rollout of the COVID-19 vaccine could lead to better-than-expected sales and a strong increase in home prices and inventory.
4. Retirement gets more SECURE: The Setting Every Community Up for Retirement Enhancement Act—otherwise known as the SECURE Act—went into effect at the start of 2020. The legislation aimed to boost savings in qualified retirement accounts. It pushed back the age at which investors must start taking required minimum distributions (RMDs) to 72 from 70½, and it repealed the age cap for contributing to a traditional IRA.
In late 2020, as many investors struggled to save for retirement, the House of Representatives proposed a new bipartisan retirement bill that is commonly referred to as the SECURE Act 2.0. This bill would push the RMD age back even further to 75 from 72, and it would increase the annual limit on making qualified charitable distributions (QCDs) to $130,000 from $100,000.
Given that retirement legislation tends to garner bipartisan support, there is a chance this bill will be looked upon favorably by the new Congress.
5. Retirement planning takes center stage: 2020 put an urgent spotlight on the importance of retirement planning. As the pandemic demonstrated, economic disruptions can appear without warning and impact seemingly “secure” sectors and industries. And a new presidential administration in Washington means we could see changes not only to retirement rules and regulations, but also to taxes this year.
These factors should put retirement planning front and center for investors in 2021. A trusted financial advisor can help you explore all of your options when building or rebalancing your portfolio, while a tax advisor can ensure you are aware of how your investment decisions will impact your liabilities. Using a self-directed IRA to invest in alternative assets, you can diversify your retirement savings in new and unique ways while building a portfolio that aligns with your long-term financial goals.
At Pacific Premier Trust, we are here to help you build your retirement savings by using a self-directed IRA. To learn more, you can contact our Business Development team at 866.818.4472 Monday through Friday, 7 a.m. – 5 p.m. MT.
The Kiplinger-Personal Capital national poll about Retirement Planning in the Age of COVID-19 was conducted Nov. 4-10, 2020, with 744 respondents. The online survey has a +/- 3.6% margin of error and a 95% confidence level. Respondents were screened for age (40 to 74), retirement savings of at least $50,000, and employment status (not fully retired).
© 2021 Pacific Premier Trust, a Division of Pacific Premier Bank.
Pacific Premier Trust 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 sponsor, or investment, tax or legal advisor.
INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE, INCLUDING LOSS OF PRINCIPAL