You can’t control what happens halfway around the world. Greece. China. Earthquakes. You also don’t get a say about when the feds will hike interest rates. Most of what you get lately is a front row seat to watch the wild swings in the Dow Jones Industrial Average.
So the question remains: If you can’t safely park your cash in bonds, and you don’t want to risk your entire life savings in the stock market, how do you grow your retirement funds?
The answer lies in how you diversify your portfolio. Smart investors are choosing to self-direct their retirement funds, including their 401(k)s and IRAs. They’re taking back some of their control—investing in something they know more about or are more comfortable with. For steadier, more predictable, passive income, they’re using alternative investments.
Why You Should Consider Alternative Investments
Alternative investments are a class of non-traditional assets—beyond stocks, bonds, or cash. Think real estate, crypto, and more.
The average investor used to mix it up by appropriating 60% of their stash to stocks and 40% to bonds. But the 60/40 way of investing is dead. We’re living longer, we can’t tolerate ridiculously measly interest rates, and it’s easier than ever to diversify our investment portfolios. We can even use our IRAs or 401(k)s for alternative investments.
Do you know that since the inception of the traditional IRA in 1974 you’ve been allowed to invest in real property in an IRA? Few do. However, using your self-directed IRA or 401(k) for alternative investments gives you a wide range of investing power. It’s a strategy that allows you to distance yourself from events you cannot control, offering you the following:
- Investment Security—Truly diversify your portfolio to reduce risk and help you reach your long-range financial goals.
- Maximum Retirement Wealth—Invest your retirement savings within your comfort zone by leveraging your industry knowledge, expertise, and know-how.
What Types of Alternative Investments Can You Make in Your Self-Directed IRA?
There is an endless array of alternative investments every investor should consider using in his or her IRA or 401(k). To name just a few:
Alternative Investment: Real Estate
One thing will never change. People will always need a place to live and a structure in which to conduct business. When you invest in real estate, you can use cash, loans, or funds from your self-directed IRA. To make the most from income-producing properties, keep these things in mind:
- There are no limitations on the types of real estate you can invest in, be it single-family homes, office buildings, apartments, tax liens, or foreclosure properties.
- Fixing up rundown houses and buildings can be profitable, but it’ll be hard to get a loan that’s not for your primary residence so you may need lots of cash, which makes your IRA a good potential source to tap into.
- It’s possible to invest passively in someone else’s real estate LLC.
- You can tap into your self-directed IRA to invest in real estate as long as you set up a dedicated account, and title and service those properties correctly.
Other Permissible Alternative Investments
The options available to you in your self-directed IRA and 401(k) include a variety of platforms. Though the IRS prohibits certain transactions, as long as you follow the rules and guidelines, the assets and strategies are up to you.
Below is a list of some of the more popular investment options available to you in your self-directed IRA:
- Real estate (both residential and commercial property)
- Undeveloped or raw land
- Real estate notes (mortgages and deeds of trust)
- Tax lien certificates
- Private businesses (limited partnerships, limited liability companies, c corporations)
- Private lending
- Private placements and private stock offerings
- Judgments and structured settlements
- Commodities
- Stocks, bonds, and mutual funds
What Investments Are Off Limits in Your Self-Directed IRA?
You have to be careful about how you invest the funds in your self-directed IRA or 401(k). A prohibited transaction can not only jeopardize the tax-deferred status of your account and mean disqualification of your IRA, but also have severe tax consequences.
Work with a specialist who can guide and help you, because certain investments are not allowed in your IRA under the Internal Revenue Code such as:
- Works of art
- Jewelry
- Rugs or antiques
- Stamps
How to Get Started with Alternative Investments
Nowadays, there are no fixed formulas. Every investor’s situation is different. Your portfolio needs to reflect your uniqueness. It also needs to be well rounded. Self-directed retirement accounts are good for you if you want to:
- Diversify your portfolios.
- Reduce the risk.
- Take control of your investments.
- Put your personal expertise to practice.
- Build your own wealth, instead of trusting Wall Street brokers to do it for you.
If you are interested in directing your own retirement savings, you first need to decide if you’re interested in a self-directed IRA or a self-directed (or “solo”) 401(k). Any U.S taxpayer qualifies for a self-directed IRA. To qualify for a Solo 401(k), you must report some self-employed income (as little as $500/year), and your business cannot maintain any full-time employees (other than you and a spouse).
When you’re ready to break free from Wall Street, contact a Broad Financial specialist online or at (800) 395-5200. We can help you decide which platform best suits your needs, and get you set up quickly and easily.
The Power of Alternative Investments
The only thing we are certain of is that we cannot predict what will happen in the economy, much less other countries. The wrong investment strategy—with an unbalanced portfolio that doesn’t weigh risks and rewards—could doom your retirement dreams.
The good news is that a retirement account with alternative investments is within the reach of any investor. To learn more about how you can potentially boost your investment returns with alternative assets contact a specialist at Broad Financial today by calling (800) 395-5200.