IRAs are one of the most popular tools in Americans' retirement planning toolkits, and for good reason. They offer tax advantages, control, and a fair amount of versatility. Unlike your company-run 401(k), for example, with an IRA, you aren't stuck choosing from a small set of fund options that somebody else has pre-selected for you. Even so, few retail investors venture outside the standard portfolio ingredients of stocks, bonds and funds, because while it's legal to add many other types of investments, it hasn't always been easy.

Enter Eric Satz, the founder and CEO of AltoIRA, a company devoted to simplifying the process of getting venture capital, private equity, REITs, direct loans, and other less common assets into your IRA. In this episode of Motley Fool Answers, Eric joins hosts Alison Southwick and Robert Brokamp to explain what his company does, why he founded it, and the reasons you might want to consider some less-mainstream investments.

But first, it's a "What's Up, Alison?" segment about an apparel company that has become peculiarly linked with big money industries. Patagonia has somehow achieved most-favored-vest-supplier status across corporate America, but it's getting a whole lot pickier about which companies will be allowed to emblazon their logos on its gear: If you're not Earth-friendly, get your co-branded sleeveless fleece elsewhere. 

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on April 23, 2019.

Alison Southwick: This is Motley Fool Answers! I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool.

Robert Brokamp: Hello!

Southwick: This week we're joined by Eric Satz, the founder and CEO of AltoIRA to discuss alternative investing in your retirement accounts. All that and more on this week's episode of Motley Fool Answers.

Brokamp: So, Alison, what's up?

Southwick: Bro, picture, if you will, a millennial man about town. He's wearing a buttoned-up shirt, a pair of chinos, casual loafers and socks. And the final piece to finish off his outfit is a fleece Patagonia vest with his employer's -- probably a financial firm -- logo embroidered on it.

So there's nothing new about the buttoned-up shirt and chinos but the vest -- the Patagonia vest -- is the thing. It's such a ubiquitous piece of clothing for men in business and finance that the Instagram account #midtownuniform was created -- it has over 100,000 followers -- to make fun of the herds of Brads and Chads roaming the sidewalks hunting for Starbucks and sweet stocks. It's a pretty funny account.

But it's not just a uniform for millennial men on the go. Men of any age, in business and finance, wear these vests embroidered with their corporate logo. It probably says J.P. Morgan or some other little-known hedge fund. But why a vest and why is it everywhere? Have you heard about the vest?

Brokamp: I've heard about the vest and I know about the vest. I don't know...

Southwick: Where it came from?

Brokamp: ... the why for the vest because I personally don't wear such a thing.

Southwick: Well, like with most bad things we can blame 2008 and millennials. Apparently the midtown uniform came into fashion during 2008 when people who worked on Wall Street were suddenly not getting awesome bonuses. Instead, like any other industry that can't pay more money, they tried to satisfy employees in another easy, cheap way by letting them dress down a little bit. So the traditional sports coats and wool slacks became vests and chinos.

And thus the cult of the Patagonia vest was born but gasp! Oh no! Bad news for bros everywhere. This last week, The Wall Street Journal reported that "Patagonia Triggers a Market Panic Over New Rules on Its Power Vests."

Brokamp: What?

Southwick: You're making a face at me.

Brokamp: I'm not!

Southwick: You didn't? OK. What happened is Patagonia, a company that is known for its environmental responsibility, announced that it won't let companies custom brand their vests -- basically embroider their logos on the vests and buy tons of them for their employees -- unless the firm is mission driven and prioritizes the planet.

The Wall Street Journal reports that Patagonia's new rule surfaced when financial communications firm Vested placed an order for "vests" with the name of a private equity firm, which was a "vested" client. The request was denied, which caught Vested by surprise, and then they complained about it on Twitter. So yes, a company named Vested was denied vests.

One certified Patagonia seller said the decision was not meant to leave any bros out in the cold; however, being a mission-driven organization that's nice to the environment means that oil companies, mine operators, and other outfits deemed ecologically damaging are going to have to find another way to stay warm in iffy spring weather.

Obviously the B2B business for Patagonia is probably not huge, but does a purpose-driven decision impact your business? I thought I would look back on a not-so-recent decision. This one has had enough time to play out. Let's look back at the purpose-led decision that received a ton of criticism in 2014 when CVS decided to stop selling tobacco products. Do you know how it all shook out?

Brokamp: I don't know.

Southwick: Well, guess what? I'm going to tell you.

Brokamp: I can't wait.

Southwick: At the time, tobacco products accounted for $2 billion in sales at CVS. It's out of $139 billion, but it's still a decent chunk of change. So they banned tobacco and what happened?

Well, a lot for the greater good. Ad Age reported that 40% more influencers saw CVS as a leader in helping to improve overall health after they made the ban. The company was listed as one of the most innovative and admired in various publications. More than 500,000 people visited CVS's Smoking Cessation Hub -- which I guess was like a website -- and 26,000 smokers sought advice from its pharmacy on quitting. In addition, cigarette sales dropped by 1% -- or 95 million packs -- in 13 states in the eight months after they took tobacco off the shelves in the states where CVS had a large amount of market share.

So what about the "sweet Benjamins" for CVS? What was the impact there?

While prescription sales continued to rise, general merchandise sales tumbled 8% on the same-store basis after the ban. But the stock actually rose from 2014 peaking in mid-2015. It's been on the decline ever since. That's probably Amazon's fault? I mean, if you can't blame 2008 or millennials, then you have to blame Amazon, right?

Brokamp: Yes, I think so.

Southwick: So CVS is kind of a muddy example considering that a lot of factors impact a company's growth. Then, again, the general research on whether being purpose driven and making purpose-driven decisions has a positive or negative impact on your business is sort of muddy.

We know that being purpose driven has a few benefits. If your employees find the purpose motivating, they're going to work harder.

Brokamp: Yup.

Southwick: And if your customers find that purpose motivating, they're going to shop harder, I guess you could say.

Brokamp: And probably be willing to pay a little bit more.

Southwick: Yeah! And so those are good things, of course; but, there are a ton of factors, not least of which is how their return on invested capital looks. That's apparently a very big deal. Of course, that's going to hit your bottom line and long-term success.

I talked to John Rotonti, here, at The Fool. He is heading up a new part of Fool.com to focus on ESG investing, which, of course, stands for environmental, social and governance. I asked him to send me some research on whether being a purpose-driven company is positive for your bottom line.

He gave me a ton of research, including a 2015 Harvard Business School study of more than 2,300 firms. They found that companies that commit to and invest in strategic sustainability efforts have higher risk-adjusted stock performance sales growth and margins, and that these sustainability activities drive business value.

But there are also studies out there that say being purpose driven really doesn't have that much of an impact on your financials, neither positive nor negative. George Serafeim, a professor at Harvard Business School who covers ESG investing, said, "Even if you do not believe that ESG factors will improve your performance, I don't see any recent evidence that integrating material information about ESG will hurt performance."

So Patagonia, go ahead and decide which bros are worthy enough to don your vest and, more importantly, keep making great in-vest-ments in the business to create the must-have gear for the most purpose-driven business-y people who business in the future. And that, Bro, is an inconclusive what's up, but that's kind of what's up.

Brokamp: I will say that Vanguard just announced that they are going to launch an ESG fund this year and Vanguard is not known as a company to just jump on a trend willy nilly. I think it's very encouraging for the prospects of ESG investments that they're going to launch a fund.

Southwick: Do you invest that way?

Brokamp: I don't, but both John and Alyce Lomax, who also works at the Fool, are very active in it. We talk a lot about it on Slack and every time I read it I think, "Man, I should do more of that."

Southwick: Be more deliberate in your investing and "invest in the world you want to live in" kind of thing.

Brokamp: That's right.

Southwick: There you go!

Brokamp: One in three U.S. households own at least one IRA, and if you add up the total amount of money in all those IRAs, you get approximately $9 trillion according to the Investment Company Institute. The overwhelming majority of that money is invested in cash, bonds, stocks, or funds -- and invested in cash, bonds, or stocks -- but did you know that you could invest in other things? Venture capital, private equity, direct loans, even; and here to explain why and how you would consider such investments is Eric Satz, the founder and CEO of AltoIRA. Eric, welcome to Motley Fool Answers!

Eric Satz: Thank you so much for having me! Happy to be here!

Brokamp: Let's start with hearing your story a little bit. How did you get into the IRA biz?

Satz: Initially I got in because I had this problem. I was trying to use my IRA savings to invest in a portfolio company of a venture capital firm that I am a partner in. To make what can be a really long story short, I ended up having to figure out how to do this on my own.

When I was done, it became readily apparent that this was not easily accessible for most people; and yet I had this strong feeling that most people ought to be adding what we refer to as "alternative assets" to their investment portfolio so that they are better prepared for retirement. So when I initially started, it was all about solving a problem for myself. Now that I'm a few years into it, it's more about addressing the retirement problem that the American people face.

Brokamp: I think a lot of people would be surprised to hear that they can invest in real estate and venture capital in their IRAs. There actually aren't that many rules. The types of things that the IRA says you can't invest in is a pretty short list. It's collectibles, antiques, most but not all types of coins, most but not all types of options. Otherwise, you actually have a lot of freedom.

I think part of the reason that people don't know about it is because the typical big-name IRA providers like Vanguard or Fidelity don't allow you to do these things. So you really did have to find someone who would allow you to do this and it sounds to me like your experience with doing that wasn't satisfactory.

Satz: That's a polite way of saying it. You're exactly correct. In terms of prohibited transactions, there are actually very few things that you can't do, collectibles being sort of the largest category. The industry is actually working, now, on a way to allow you to invest in collectibles by securitizing the opportunity and there are a couple of companies out there that are doing that. In the art world there's Masterworks. In the antique car world there's Rally Road.

But to your point about the larger players -- Fidelity, Schwab, TD Ameritrade -- there's good reason why they don't allow their investors to participate in alternative assets. The first is that they have an investment committee structure where they say, "Here's the list of public company stocks and bonds that you, as an investor, are allowed to choose from."

They do that for two reasons. One is because they have a fiduciary relationship, for the most part, with their customers and they don't want the liability or responsibility associated with someone who makes an otherwise illiquid investment. More times than not, illiquid investments do have an opportunity to result in a negative return. I'm not really talking about real estate in this case or even later-stage private equity. I'm talking about earlier-stage venture capital, which is what a lot of people associate with when they're thinking about alternative assets. And so, the larger broker-dealers don't want that association, responsibility, or liability.

The other thing is that it's not an easily managed task for the customers of each of those platforms to say, "Hey, I'd like to invest in Company X" and have the investment committees of those large broker-dealers try to assess Company X. Nearly impossible.

Historically, what has been referred to as the "self-directed IRA industry" really was created back in the mid-1970s when ERISA was created. The idea is to give the individual investor the ability to own their own investment decision-making and to take agency for their future retirement.

Brokamp: You just mentioned ERISA. That's the Employee Retirement Income Security Act of 1974, which gave rise to IRAs.

Satz: Correct.

Brokamp: You used the term self-directed IRA, which I always thought was a misnomer, because most people are making their own decisions with their IRAs, but that is a specific term. It's basically an IRA that allows you a lot more freedom in what to invest in.

Satz: That's exactly correct. It's a little bit like saying "natural food," which means it's somewhat meaningless. In fact, most of us have self-directed accounts at Fidelity, Schwab, or TD Ameritrade. I'm not picking on these companies. I actually think they do almost everything incredibly well. But what that means when you have this type of IRA account at one of these broker-dealers is you get to pick from the list that they tell you you get to pick from.

That's why we refer to what AltoIRA is doing as the "alternative IRA," meaning you are given the power and agency to invest in alternative assets -- otherwise known as non-publicly traded stocks, bonds, and securities.

Brokamp: Let's talk a little bit about why you would bother doing that. Why do you think that people should consider putting at least a portion of their portfolio in these types of assets?

Satz: You just nailed it, by the way, with "portion." We're not in any way suggesting that anybody should go out and bet the ranch. As with any sort of investment approach, we believe in a diversified portfolio approach and we believe that the percentage of your total portfolio that you allocate to alternative assets should also be diversified.

In 2015 the National Institute of Retirement Security did a survey, the result of which was that 86% of Americans think that we have a retirement crisis coming. In addition, it found on a projected basis that by 2050, assuming status quo, we will have roughly 25 million retirees either in poverty or near poverty.

So there's an asset mismatch when we think about retirement savings and retirement investments. The mismatch is that when you invest with the major broker-dealers, all of those assets have a liquidity requirement associated with them. And that's because in America, unlike almost any other place in the world, we're actually allowed to withdraw our retirement savings.

Now, we pay a penalty if we do it. If we actually look at what typically happens, most people have to dig into their retirement savings before they retire. You require liquidity, which means you don't get the premium typically associated with longer-term illiquid assets. You have a mismatch. We're taking long-term savings and we're investing it in short-term assets for the most part. So if you include a percentage of your portfolio in the illiquid, alternative asset space that does tend to carry what we can call an illiquidity premium, you should be able to boost your overall portfolio return by two to three points, which is a big number over a lifetime.

Brokamp: Right, and there's been a lot of research about that, done by Roger Ibbotson, if people want to read more. We've heard for years about the value premium and the small-cap premium. Then came the "liquidity premium." That definitely does show up in the academic literature.

The flip side of that, though, is obviously some people are either close to retirement or in retirement, and they have to look at required minimum distributions. Are some of these options that are available more liquid than others that people who are closer to retirement should consider?

Satz: A great question! I think as you get closer to retirement and you're thinking about alternative assets, you're really thinking about current-pay assets, which include things like real estate -- at least you hope it's current-pay.

There's no question that the same way you want to adjust any portfolio mix over time, you want to be thinking about a different set of alternative assets as you get closer to retirement age. There's no question.

I think the big thing that has changed today vs. even five years ago is the way that every one of us, at almost any monetary scale, can now build a diversified portfolio of these assets. The big thing that changed was the JOBS Act -- Jumpstart Our Business Startups Act -- and there are a bunch of titles within the JOBS Act. The important one for us is Title III, which says that non-accredited investors can now participate in alternatives when they couldn't before.

Now, they have to participate on what's called a "Reg CF platform" -- Regulation Crowdfunding -- but the fact of the matter is that when you participate in these platforms, you can participate with as little as $100 per investment, which means if all you have is $2,000 you could build a portfolio of 20 different assets. And we all know -- and the academics show -- that the more companies you have in your portfolio -- the more diversified the portfolio -- the better your chances are of outperforming expected returns.

Brokamp: People can come to AltoIRA with their own ideas, right?

Satz: They can.

Brokamp: And then AltoIRA acts as the custodian. Someone comes to you and says, "I have this great real estate deal I want to invest in."

Satz: Correct.

Brokamp: But you also have investment platform partners that have some of these start-up ideas.

Satz: That's right. We made a couple of big changes to the industry based on initially my own experience. Then we added to the team. As we talked to more investors in the marketplace, we began to understand where we could continue to add value.

The first thing was that in the traditional workflow process, the investor was asked to do all the work. All the heavy lifting. And by the way, it took me about six weeks to execute my first transaction. I've been making investments for over 20 years, and six weeks is way too long. The company never would have waited for me to be able to fund my investment if it hadn't been for the fact that I was actually on the board of the company.

The first thing we did is we said, "You know what? It's not enough to have a relationship with the investor. We need to have a relationship both with the investor and what we call the 'issuer.'" The issuer is the company that's receiving the money or the company that's either selling the security or borrowing money. And in some cases an issuer can be an individual, by the way.

We said, "We're going to ask people for the information that they're most likely to have -- name, date of birth, address, Social Security number -- and we're going to ask the issuer for all the other information -- a corporate EIN, which is the employee identification number, the corporate version of a Social Security number. We're going to ask them for their bank account information so we know where to send the money. We're going to ask them for their offering documents, which they have."

If you ask someone -- someone being an investor -- to go get the company's bylaws, or certificate of incorporation, they're like, "What? Why do I need that?" It's a really good question! So we said we were going to ask the issuer for this. We built this two-sided platform which allows us to not only streamline the process, but it allows us to serve as the central communication hub and workflow hub for both the investor and the issuer, so we can make a transaction happen very quickly and with little heartache on either party's part. That was the first thing.

The second thing was we took what was otherwise a "people and paper" burden process and we said, "We can do this with technology and we can do it in a scalable fashion." Think about what TurboTax did for people who wanted to self-file. I no longer had to read the tax code. I didn't have to find a CPA. I didn't have to go to somebody else to help me figure out how to do my taxes. It used to be you had to buy the software. Now all you do is log in. You pay your $99. You follow the questions, you provide the answers, and poof! Your taxes are done. That's what we wanted to do for alternative IRA investing and hopefully we're there.

Brokamp: Talk a little bit about the costs involved. When I started writing about self-directed IRAs -- 10 to 15 years ago -- the costs were much higher than if you just opened an account with whatever TD Ameritrade and paid your $10 per commission.

Satz: When we started Alto, I found that there were three fundamental issues or problems. The first was an existing education or knowledge gap and we talked about this at the beginning. Most people don't know they can use their retirement savings to invest in alternative assets. That was No. 1.

No. 2 was deal complexity. If you'd never done this type of investing before, good luck trying to figure it out on your own, where you're expected to do all the work within the confines of a traditional self-directed IRA custodian.

The third was cost. The average minimum fee for maintaining an account with a self-directed IRA custodian was $300 and then that number would increase based on your account size, which was mind-boggling to me. Mind-boggling because every one of those custodial agreements says, "We are not your advisor. We are not responsible for performance. We're simply an administrator." Well, I don't know a lot of administrators who get paid extra basis points because your account and your investing did well. I was a bit offended.

Our account fee structure is as follows. There are three components to the fee structure. The first is an account opening fee, the second is a transaction fee, and the third is a recurring account fee. The account opening fee of $49 is meant to cover all of the fund transfer costs, as well as the Know Your Customer and Anti Money Laundering costs.

The second is the transaction fee that's going to range from $9 to $99 depending on whether or not you're making an investment directly in a company or you're investing through one of our platform partners. The idea is that the lower the average investment, the lower the average fee.

On the final piece we give our customers the choice to opt into one of two tracks. Either we'll charge you based on your account size or we're going to charge you based on the number of assets you have in your account. The idea is to build the benefit into the customer's favor and not in our favor. The lower the account size, the lower your annual account fee. The whole idea is to make sure that you build a diversified portfolio and that our fee structure is not in any way inhibiting or disincentivizing you to do that.

On the other side, for people who are investing larger amounts, we don't want to disincentivize them, either. They're going to get charged on a per-asset, per-year basis, but in both cases, no matter which path you choose, we're never going to charge you more than $499 for the year. Better, faster, cheaper. That's what we're aiming for always.

Brokamp: You talk about diversification. I think that's important because people could even go to some of these platforms and see the companies that are available. And the bottom line is most of them are start-ups -- very young companies -- so it's not necessarily the same thing as investing in IBM or Procter & Gamble. For somebody who says these things feel very risky, how do you respond?

Satz: So investing in start-ups is risky, which is why you don't bet on one. You might as well go to Vegas. You'd maybe have better chances. I also want to point out that not all investment platforms are early stage focused.

If you go to YieldStreet, you can invest in real estate, shipping containers, or litigation finance. If you go to Groundfloor, you've got commercial real estate. Residential real estate. There are a lot of these companies. CrowdStreet, PeerStreet, and OurCrowd that are not early stage venture capital focused. Given my background in venture capital, I tend to gravitate toward AngelList, then WeFunder and others. Republic. But that's not the sole approach.

Actually, to draw this back to the fee conversation, I don't want you to be penalized if you do a couple of investments on WeFunder, a couple of investments on AngelList, a couple of investments on Groundfloor, and a couple of investments in YieldStreet. If you benefit by account size so that you can build that diversified portfolio, go ahead and do that. That's what we want to enable.

Here's the other thing I would say. We're looking for a change and we are not far from Washington, D.C. There's an amendment to the JOBS Act that already passed the House and is currently stuck in the Senate. The amendment does one really important thing. It allows non-accredited investors to participate in funds. Right now non-accredited investors are not allowed to participate in funds, which is exactly wrong.

Now, Congress made it this way to begin with. Go figure! They got it backwards. If what we want to do is allow for diversification, and if at their core governmental people are saying that non-accredited investors aren't smart enough to invest in alternative assets, then I say let's give them the right vehicle with which to achieve diversification, and this is a fund.

It's a bipartisan bill. I think it has bipartisan support and, as you all know living very close to Washington, D.C., that doesn't necessarily matter because it's not about that bill. It's not about that amendment. It's about somebody horse-trading for something else, but we need this to go through if we're going to fix the retirement crisis or at least address the retirement crisis that's coming.

Brokamp: We talked a lot about types of investments, but let's close here, if you can, with maybe some specific investments that you know about that people have used your type of IRA form. Maybe something that's offered on one of these platforms. Let's give people a specific idea of what types of things are available.

Satz: I'll start with some things that accredited investors are doing. There are a couple of companies -- Forge Global and EquityZen -- that are rebuilding the secondary trading capabilities. We have some accredited investors who are using their IRA accounts to purchase Uber. SpaceX. Slack. Things like that where the employees are looking for some liquidity ahead of an IPO. So this is a vehicle for them to do that.

At YieldStreet we see our customers participating in shipping container deals. I don't know the names of the specific vehicles. Also litigation finance, as well as some New York real estate.

At AngelList, a lot of the companies that many of us use from a technology standpoint; if you want to know where the hot company is, we can just look at what our investors are investing in via AngelList. Lots of different ways to do this.

The other thing I would say is when you have a friend who you believe in and you have a good sense for the problem they're attacking with their business, if you have those two metrics -- we like to say bet on the jockey and not on the horse -- but if you like the horse, too, go for it. Just don't bet it all!

Brokamp: Right. Well, Eric, this is fascinating! I think a lot of people have learned a lot, here, today. Obviously if they want to learn more about your product, go to AltoIRA.com.

Satz: That's correct!

Brokamp: Anything else you want people to know before we head on out?

Satz: I'm just excited to be here, and I appreciate you both having me!

Southwick: Thanks! Thanks for making the trip!

That's the show. It's edited alternatively by Rick Engdahl. Our email is Answers@Fool.com. You can also join our Facebook podcast group. It's fun!

Brokamp: Oh, yeah!

Southwick: People say things.

Brokamp: Oh, yeah!

Southwick: And you can follow us on Twitter or not. Whatever. That's fine. Again, our email is Answers@Fool.com. Drop us a line. Send us a question. Yay! For Robert Brokamp, I'm Alison Southwick. Stay Foolish everybody!