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Alternatives in your Retirement Plan with Alto

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Retirement Planning with ALTO IRA. Thinking Long term

401(k), Defined-benefit or cash balance plans, and Individual Retirement Accounts (IRAs) are the retirement vehicles that citizens across the U.S. use to save. 401(k) is reserved for employers, whereas anyone in the U.S. can open an IRA.

In 2020 about 18% of working-age individuals had an IRA or Keogh account according to the United States Census Bureau’s latest data. At the same time there were 10 million self-employed people in the United States in 2021. Less than 5% of the working population of over 2 million people.

Media IRA or Keogh value was $30,820. The main difference between Keogh and an IRA is the contribution limit, with Keogh plans allowing significantly more contributions than IRAs. It is a market with over $11 trillion of investments made by individual investors planning for their retirement. And, importantly, not exclusively self-employed people.

The problem is that historically about 60% of retirement plans would be recommended to be held in stocks. Whilst the other 35% could be held in treasury bonds, municipal bonds and other fixed income vehicles. And maybe a bit of cash as well.

Interestingly, today IRAs are growing popular amongst millennials and Gen Zers. The younger generation (1981 – 1996) have become increasingly interested in setting aside for their retirement.

Retirement Planning that is based on Alternatives

Alongside the growth of younger investors, the appetite for alternative investment strategies has risen too. The recent market turbulence has been going on for some time. Short term strategies have not provided the returns they did when the markets were more predictable.

One of these alternative investments are digital assets. Bitcoin, Ethereum, and a whole host of other ‘altcoins’ that can be used as part of an investment strategy.

The increase in desire for digital assets to be part of a retirement strategy is not for everyone. Many Americans (49%) have only a beginner-level understanding of what a digital currency is. Solutions are popping up every day for the rest of them.

One of the leading firms in the space is Alto. In 2018, Alto launched its first-of-its-kind digital platform, Alto IRA, which streamlines the self-directed IRA process, enabling individuals to use their tax-advantaged retirement funds to invest in alternative assets. Alto CryptoIRA, a self-directed IRA just for crypto, was introduced in 2020. The step into crypto, or digital assets, drew the attention of news outlets across the world. Including #DisruptionBanking.

Digital Assets are just another Alternative Investment at Alto

In 2022 Fidelity Investments, the largest retirement plan provider in the United States, became the first to add Bitcoin as an investment option in its 401(k) plans. Increasing the popularity of digital assets as an alternative retirement saving method.

The CEO of MicroStrategy, Michael Saylor, immediately jumped on the idea, which allows the firm to pay some of an employee’s pension into a digital assets wallet.

Eric Satz, CEO of Alto, was already thinking about a similar opportunity almost a decade ago. Today Alto has risen in popularity following the mega trend led by institutions, including endowments and family offices, which now hold anywhere from 25% – 50% of their assets in alternatives.

#DisruptionBanking spoke with Eric about a recent story from The Motley Fool. The investment guidance platform suggests when approaching digital assets as part of your portfolio, you should consider:

“A well-diversified portfolio can help protect your savings if crypto doesn’t pan out. While everyone’s investments will look different, it’s wise to invest in at least 20 to 25 stocks from a variety of industries. In other words, make sure you’re not putting all your eggs in one basket with crypto.”

Why the 60/40 portfolio is dead

Eric is a strong advocate of alternatives in an investment strategy. The clue is in the name ‘Alto’.

“The reason we built the platform is because it’s all about portfolio diversification,” Eric explained. He also explained how he has been saying that 60/40 is dead for several years now. Today he believes that the alternative sector should play a much larger role than it has to date. Not to the exclusion of equities or securities, but real estate aside today less than 2% of the rest of an average portfolio is true alternatives.

“We’re not optimizing. The goal at Alto is alternatives for all. If we do this right, we can play a significant role in fixing retirement, at least in America. If others can do it in Europe and elsewhere, even better.”

“We have a core value, which is educate to drive equality,” Eric explained.

The problem is with investment behaviour. Eric elaborated how as prices go up people get excited, and they buy. As something goes down, they panic and sell. A position that nobody should find themselves in.

“One of the things that I love about assets that are non-crypto is that you can’t just wake up and sell and hurt yourself. Ideally you do your homework, research and due diligence and you find a company that you can make an investment into for seven years or more. And then (in seven years) you worry about being paid off for your investment.”  

Education is at the heart of everything at Alto

Recent stories have shaken the fragile digital assets ecosystem to its core. As a result Alto issued a message to their users about how liquidity can be a major concern for crypto investors:

Eric believes that the recent turbulence to affect cryptocurrencies has a lot to do with investors thinking they can get something for nothing. He also feels that it’s taken the U.S. too long to set any regulatory guidelines. Even though many of the leading cryptocurrency exchanges like Coinbase have been asking for regulation.

As to Blockfi, Celsius, or Voyager, the idea that somebody can earn 20% interest without risk is not something that Eric feels is a serious topic. He feels that the problem can be solved through investor education. Especially when it comes to crypto. But any asset class or security. Especially as it is the long term strategy that is needed when it comes to your retirement. Not the short term strategy that has afflicted so many investors on the market in 2022.  

Why consider Digital Assets as a part of your retirement strategy

Eric draws parallels between the rise of the internet and the growth in popularity of digital assets. He explained how people had believed that the internet was dead. People started to invest into companies listing on stock exchanges because of the hype of the internet, not because there was any sound business model behind them. Much like can be seen today with many of the 1000s of altcoins, Eric pointed out.  

“Do we need 1000s of blockchains? Probably not,” Eric shared. He explained how doing your homework when it comes to digital assets is key to understanding how to invest. And as to public figures who endorse digital assets like Gisele Bundchen, Tom Brady, or Matt Damon. It is not up to the public figures themselves to due diligence individual digital assets. It’s the responsibility of the investor.

Assets Under Administration, not Assets Under Management

The relationship that Alto have created with Coinbase is both as a strategic investor as well as a “facilitator”. Eric explained how “this is the nature of self-directed IRA investing. That you are self-directing. What we do is we ‘facilitate’ your retirement investing by having an integration with Coinbase.

“Coinbase is the liquidity provider and Coinbase is the crypto custodian. What makes Alto different is that we have a relationship with the Coinbase Custody Trust Company. Which is Coinbase’s custodial entity,” Eric shared. He explained how this was the main difference between how BlackRock supports clients, through Assets Under Management, and how Alto does it, through Assets Under Administration.

“It’s why I’ve always been comfortable with Coinbase,” Eric continued. “Because they are ‘custodying’ our customers’ assets on our behalf. And customers’ assets are segregated.”

And when it comes to Alto’s clients. Eric highlighted how these are also the same customers that use Coinbase as retail investors. Alto doesn’t endorse, promote or track the choices of digital assets that their IRA investors choose.  

Transforming the Nashville Ecosystem

In 2022 #DisruptionBanking travelled to Nashville in Tennessee to meet with AllianceBernstein and the Greater Nashville Technology Council. The Music City is changing. The Greater Nashville ecosystem has grown to over 2 million Nashvillians from less than 800,000 when Eric moved there 20 years ago. He is originally from Cleveland, Ohio.

Since Eric created the foundations of what today is Alto. Some of the recognition the firm has received is for Best Tech Startups in Tennessee in 2022. And Best Tech Startups in Nashville in 2020, 2021, 2022 and 2023.

22% of Nashvillians come from California. Not unlike the CTO of AllianceBernstein who is from the UK, or indeed Eric himself who is from Ohio. Eric believes that Nashville hit an inflection point in the late 2010s when people started to see the attractiveness of Nashville as a destination.

Eric remains engaged in activities within the local ecosystem. In 2022 he was awarded as the winner of the technology award in the Nashville Entrepreneur Center ‘Market Mover’ category.  

Thinking Long Term about your Retirement

Finally we returned to the significance of a long term mindset.

“The greatest thing we all have is time on our side. Time arbitrage. If you make the bet and let it sit. You’re going to do better,” Eric concluded.

If you are still considering increasing exposure to alternative investments in your portfolio, Alto is a reputable firm with very good reviews on Trustpilot. See what they can offer you in terms of a retirement strategy.

Author: Andy Samu

The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.

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