Most investors have little trouble making an "alternative investment" in their retirement account. The current "rule" of asset allocation calls for having about 5% -10% of your overall investment portfolio to be in "alternative investments" as a compliment to other assets such as stocks and bonds.

Before 2008, alternative investments were discussed strictly as an investment option with “accredited investors,” or those who have over $1 million of assets (exclusive of their home) and an income requirement (has made at least $200,000 for each of the last two years). This was to define the investor who was willing to accept the lack of transparency inherent in most of these investments, and (perhaps more important) could absorb a potential full loss of their investment in these highly risky investments.

Much of this changed after 2008, when investors were searching for investments that had little to no correlation to market swings. Advisors were also anxious to find investment vehicles for investors, who were now no longer enamored with stocks and bonds.

Currently, the "average" investor can add "alternative investments" as a small part of their investment portfolio through investments in exchange-traded funds (notice how many ETFs have been created since 2008?) that invest in REITs and commodities. These "liquid" alternatives gives the average investor the ability to gain more access to "hedge fund type" managers and investment styles then they had in the past, when it was primarily reserved for the wealthy investor.

As discussed in my last two articles in this series, I believe that an investment in bitcoins can, and should, be considered an alternative investment. And as such, I'd like to make an investment in them to fit into my asset allocation "category" of 5%-10% within my retirement account. These articles have examined my journey thus far to meet that "goal" and at this point, I've discovered:

A method for buying bitcoins in a qualified investment account doesn't currently exist. Sure, you can "designate" a non-retirement, investment account for this purpose and buy individual bitcoins but you can't do this in a qualified retirement account. To see a person who took this route and their experience, click here.

Bitcoin investment vehicles for the "average investor" such as an ETF investing in bitcoins, which is being touted by the Winklevoss twins, aren't currently available and will require approval by the SEC, which could be a lengthy process.

The only current method for making a bitcoin investment in your retirement account is to have a "self-directed" retirement account and be an accredited investor. The options for the investments to be made in this type of account are limited.

I've researched the few available investment options and have gone through the process of setting up the "self-directed" retirement account. I've also filled out the necessary, and lengthy, paperwork that acknowledges that I'm an accredited investor and have decided that I'll be making the minimum investment into something called the Bitcoin Investment Trust (BIT) and placing that into my retirement account.

The Bitcoin Investment Trust is a private, open-ended trust that invests solely in bitcoins. What that means is that it's an investment that is not currently available through an open market or traded on an exchange, but must be subscribed to through a private placement memorandum and exclusively by accredited investors. The disclaimer information for the investment should be enough to frighten away the most prudent investor: "The BIT is a private, unregistered investment vehicle and NOT subject to the same regulatory requirements as exchange-traded funds or mutual funds, including the requirement to provide certain periodic and standardized pricing and valuation information to investors. There are substantial risks in investing in the BIT."

The investment simply buys bitcoins and places them into this "trust.” It's modeled on the SPDR Gold Fund, which takes a similar approach with their gold portfolio, which is available to any investor, in any type of account and is traded through the NYSE.

As an accredited investor in BIT, your investment in this trust gains you a "slice" of this portfolio of bitcoins. If the price of bitcoins increase, your holding increases. If they drop, your investment drops.

Along with investments of this type come rules that you agree to. One rule is that you can't sell your investment for at least one year. After that time, you will actually be able to sell your shares in the OTCQX market, where theoretically, any investor could then buy these shares being offered for sale.

Barry Silbert of SecondMarket, which runs the BIT, describes this sale to the general public, "The people who have already invested, when they decide to sell, they can do so to the public market. So, the amount of shares available to the public market will be dependent on the existing shareholders' desire to sell shares."

What this all means is that although the "average investor" can't currently gain access to an investment such as the BIT, in the future, all investors will potentially be able to buy a bitcoin investment vehicle, even in their retirement account. By that time, the Winklevoss Bitcoin ETF may also be available, providing another bitcoin investment option to the general public.

I guess at this point in time, I'd have to conclude that by having a bitcoin investment vehicle (BIT) in my retirement account, I'm not your “average investor.” It'll be interesting to see what the future holds in terms of making other bitcoin related investment vehicles available for all investors. Until then, I'm stuck with this investment — at least for one year.

The investment that I've made into the BIT is equal to less than 5% of my overall retirement account. Although I admit that I'm nervous about this investment because of its risky nature, I feel that by using effective asset allocation in one's portfolio, it adds diversification and risk (with potential for higher reward, as well as significant loss) without "betting the ranch" and potentially destroying the retirement "nest egg" that I've worked hard to create over the years.

I'll discuss more about asset allocation and how alternative investments play into that allocation, particularly in retirement accounts, in my next article in this series.

After that, I'll be checking in on an irregular basis on the bitcoin investment I've made and its impact on my overall plan for retirement in the future. By doing so, I may be able to chronicle the rise, or fall of bitcoin (or at least, my investment in them) over that time.

DISCLOSURE: Jack Tatar is invested in the Bitcoin Investment Trust.

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