Is America in a Recession? Should Investors Seek Refuge in Alternative Asset Classes?

With the stock market suffering severe losses, the S&P 500 down 17 percent year-to-date, and the DJIA down 13 percent, investors are forced to examine their asset allocation in both their retirement accounts and taxable portfolios. Although the stock market does not represent the overall economy and vice versa, the future of your investment portfolio performance can be heavily weighted on the health and strength of the economy and financial markets.

Are we in a recession?

Unfortunately, we often don’t realize we are in a recession until we are in the middle of it. The Great Recession started in December of 2007, according to the Federal Reserve . On December 21, 2007, the S&P 500 chart read 1,484; it bottomed at 683 on March 29, 2009.

According to the U.S. Bureau of Economic Analysis , Gross Domestic Product (GDP) was +6.9 percent in Q4 of 2021 and -1.6 percent in Q1 of 2022. The U.S. Bureau of Labor Statistics reports inflation as of May 2022 at 8.6 percent, with energy and food leading the pack at 34.6 percent and 10.1 percent, respectively.

These indicators and others potentially make the argument that the U.S. is either in or heading toward a recession. Moreover, many are worried about stagflation, which is when an economy experiences high unemployment and slow economic growth, along with rising prices and a decline in GDP. From the data shown above, could one infer we are entering stagflation?

Recessions and corrections are very difficult to predict, even by the savviest financial analysts. Instead of trying to guess what the future holds, we should reframe our thinking and instead ask, “What can we do to protect our savings? Is putting all our retirement account funds in the traditional financial markets truly considered diversification?”

Diversification options

With all this news and data, what can investors consider to safeguard themselves from the impacts of a recession and stagflation? Real estate is an asset class used by some of the wealthiest as a hedge against inflation and stock market volatility. Private equity investing can allow an investor to participate in the private markets, which may have little to no correlation to the traditional financial markets. Gold can serve as a hedge against inflation and, at times, a growth opportunity.

Some may challenge the notion that real estate is a safe-haven asset class, given the prices are at all-time highs. However, Warren Buffet’s saying may ring true: “Be fearful when others are greedy, and greedy when others are fearful.”

In May of 2022, home prices were up 14.7 percent year-over-year, but the number of homes sold was down 6.8 percent. At the same time, 11.8 percent of homes had a price reduction, up nearly 5 percent from the prior year. Rent prices in May 2022 were up more than 15 percent year over year. For buy-and-hold rental property investors, conditions favor a long-term strategy of long-term cash flow and future appreciation.

Little-known retirement account option

As far as retirement accounts and savings are concerned, most Americans have been conditioned to invest their hard-earned 401(k), 403(b), TSP, IRA, or other retirement plan in stock market-based products like mutual funds, ETFs, and fixed-income bond assets. Some may have an option to “self-direct,” but they are limited to publicly traded securities.

There is, however, an account referred to as a self-directed or alternative asset IRA. Don’t confuse this with what you will find in the law books: It is not a legal term, but rather an industry term.

Most financial companies will only allow you to invest in stock market-based products with an IRA or other retirement account. There are specialized financial firms, like Equity Trust Company , that focus on assisting clients with investing beyond the stock market and into alternative assets like real estate, notes, private equity, gold and silver, cryptocurrency, and much more.

In other words, you can regain control of your retirement savings and no longer be at the mercy of the traditional markets. Some investors like to refer to this as migrating from Wall Street to Main Street investing.

More options for alternative investing in an IRA

A challenge some investors face is identifying and executing on alternative asset investing. I often hear: “The idea sounds great in theory, but if I have no experience or access to alternative investments, what are my options?”

The good news: technology has advanced quickly since The JOBS Act of 2012 , paving the way for more investors to get involved with startup and crowdfunding investments – opportunities once limited to ultra-wealthy, accredited investors. Now there are a variety of platforms and forums to help the average investor locate capital-raising opportunities that suit them.

Interested in this alternative asset as a diversification strategy, but not sure where to start? Check out Equity Trust’s marketplace-style gateway to potential options at InvestmentDistrict.com .

Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.