Inflation, stock market volatility among top reasons investors adding private markets to their IRAs

April 27, 20233 min read
Inflation, stock market volatility among top reasons investors adding private markets to their IRAs
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IRAs that allow alternative investments, commonly referred to as self-directed IRAs (SDIRAs), are among the fastest-growing types of retirement accounts. In fact, private market investing platform Yieldstreet has seen a more than 39% uptick in SDIRA account creation in 2023 compared to the prior period.1 

To understand more about what is driving this trend and gain insight into investor goals, we surveyed a random sample of more than 120 high-net-worth investors with an SDIRA.

Key insights from survey

A range of concerns are driving action 

SDIRA investors reported inflation, stock market volatility, and a potential recession as their top concerns with regard to meeting their retirement goals. 

Other less common responses included concerns related to upcoming elections and resulting potential tax changes.

Investors are primarily seeking SDIRAs to diversify or hold a particular asset 

While diversification with alternative investments was previously challenging in a retirement account, new innovations are making these assets readily available in IRAs. 

It is also common for investors to open an SDIRA to purchase a particular asset, like a rental property.

Real estate is top alternative for IRAs; crypto falls last

SDIRAs open investors to a much broader universe of potential investments that can help guard against stock market drawdowns and keep pace with inflation. 

Most notably, real estate has historically shown lower correlation to the stock market. Regular rent increases — especially with multi-family properties — are often used to help meet inflation levels.

To achieve higher potential returns, investors are comfortable with longer lock-ups

The trade-off with private market investments is generally less liquidity (also known as the “liquidity premium”). However, surveyed investors indicated they are open to longer lock-ups, with the majority selecting they were comfortable with a 4+ year hold. 

About the survey

Survey conducted in late March and early April 2023 by Equity Trust and Yieldstreet. Total of 121 respondents. Approximately 75% of respondents were accredited investors, or have a net worth above $1M and/or income above $200k ($300k combined if married). 

1. Source: Yieldstreet. Figure represents new, funded SDIRA accounts opened in 2023 compared to the prior period in 2022.

Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.

Diversification does not ensure a profit or protect against a loss in a declining market.