The stock market has been experiencing increased volatility in recent weeks and it may be time to rethink how your retirement plan is set up and the other options that are available. Jeff and Rachel Nabers of the Nabers Group joined the latest episode of The Yield with Peter Kerr, CFA to discuss the benefits of a solo 401K and alternatives as a way to diversify your retirement portfolio with the addition of alternative investments.
So, what’s the difference between a solo 401k and a traditional 401k? The big distinction between the two is that a solo 401k is a retirement plan for an individual with no full-time employees while a traditional 401k is usually provided by an employer.
“If you’re a large corporation, and you have 10 or 100,000 employees your job as a fiduciary is to protect those employees. What sometimes happens, though, is you’re really protecting them from themselves, and what that can mean is because of the administrative burden of these giant corporate 401k plans, the investment options are locked down right, the bigger the 401k the less options you tend to have, whereas the opposite is true, with something like a solo 401k. You’re probably not going to defraud yourself, so if it’s just you or potentially you and a spouse in your plan your investment options become far more expansive,” Rachel Nabers told The Yield.
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To further break it down, the options that are available with a solo 401k are much more expansive than those available in a traditional 401k according to Nabers. She said solo 401k’s allow for contribution limits that are exponentially higher and alternative investments offer the opportunity to venture away from the traditional path one may take when planning for retirement.
Jeff Nabers said, “with alternate investments you are kind of diverging and venturing a little bit away from the herd, and that becomes a liability for a big 401k, but when you’re just investing for yourself, that becomes courage and independence, and it can become a good idea if you know what you’re doing, and you have access to good investment deals.”
Rachel believes the traditional ways of approaching investing may be outdated. She said, “The 60/40 portfolio has really just been the default, it’s just what people are sort of doing without understanding or knowing or being aware that there’s other alternatives out there for them. So really that’s the first step that I see when we’re speaking with our clients with our users. The most common question I hear is, can you really do that or how is that even legal?”
According to Nabers, when considering alternative investments in a retirement portfolio, it’s no surprise that crypto is the first alternative investment that many investors are looking to add, followed by real estate. The next step is to turn those passion investments into growing wealth and retirement planning. As Rachel put it, just planting that seed for investors that have never considered alternatives before is an important path forward, she said, “You can go after passions and then marry that with sort of the aggressive wealth growth and your retirement planning and just I think planting that seed for investors that have never considered that before is a really powerful step.”
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