One-Stop Investing – Alternatives & Brokerage Sub-Accounts in an IRA

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Investing in Alternative Assets

The ongoing COVID-19 pandemic has already changed the way we live and work, but will it change the way we invest? That is a question many financial professionals and their clients are considering. The answer could very well be “yes.”

With so many uncertainties in our new “normal,” many investors may turn towards diversification. For some, this may include opportunity zones and social impact investing, while others may focus on private loans to small businesses that are struggling with the economic impacts of the pandemic. Still, some investors may choose to add real estate or precious metals to their retirement portfolios to expand and invest beyond the stock market.

When investors make the decision to diversify their IRA, 401(k), or HSA holdings, it is often uncharted territory. In fact, most will need to find a new account custodian that allows alternative assets. That is where a self-directed IRA custodian comes in, allowing clients to invest in a broad array of options. And yes, that includes stocks and mutual funds.

Investing in the Stock Market

When investors think about self-directed IRAs, they often assume they can only be used to invest in alternative assets. The reality, however, is that a self-directed IRA can invest in both publicly traded securities and alternative investments. What’s more, is this can be accomplished under the umbrella of one account with New Direction Trust Company.

Why both?

For most, diversification means a balance of traditional investments and alternatives. During times like these, where unforeseen circumstances lead to market volatility, investors begin to look toward a more balanced portfolio. While traditional investors may start looking at alternative assets, alternative investors may begin considering publicly traded securities. As an NDTCO client, we make adding stocks and mutual funds to your portfolio easy.

How Does It Work?

The easiest way to invest in public securities with NDTCO is by opening a sub-brokerage account through a separate brokerage company. The sub-brokerage account will be an “asset” in your NDTCO account. We work with TD Ameritrade, but feel free to contact us if there's another brokerage company you prefer.

Opening a sub-brokerage account can take between 5-10 business days with TD Ameritrade, possibly longer with a different broker. Upon receipt of your account application and Brokerage Buy Direction Letter (which instructs us how much cash to deposit into the sub-brokerage account), NDTCO will send both forms to your broker.

Once the brokerage company has processed the application and opened the account, NDTCO will transfer IRA funds to the sub-brokerage account in accordance with your Brokerage Buy Direction Letter. A welcome packet will be sent to you by U.S. mail with account information and log-in instructions. A few days later, a PIN will arrive by U.S. mail. At this point, you can begin placing trades.

As investors consider adding publicly traded securities alongside their alternatives, there are some important guidelines to remember when investing through NDTCO:

  • Short sales and naked options trades are prohibited.
  • Purchases using margin are prohibited.
  • The account can never be at risk of going below $0.
  • Assets held in the sub-brokerage account cannot be transferred in kind. If you decide to close the sub-brokerage account and direct your holdings elsewhere, you will need to liquidate any positions and transfer cash.

To learn more about sub-brokerage accounts, please don't hesitate to contact us at 877-742-1270 or info@ndtco.com.

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