Discover the options beyond this circle of traditional investment vehicles (Source: Pixabay.com)
When most people think about an Individual Retirement Account (IRA), the assets that first come to mind include stocks, bonds, money markets, mutual funds, CDs and annuities. There are, however, many more options beyond this circle of traditional investment vehicles. While there’s nothing wrong with having most of your IRA assets in this form, there’s plenty of opportunity in non-traditional investments acquired via self-directed IRA.
You’ll require a custodian to manage the self-directed IRA. This won’t always be easy since the largest IRA custodians such as mutual funds and banks are reluctant to dabble in non-traditional assets. It’s still worth taking a look at these investment options because though they typically come with higher risks, they may also present a significantly better rate of return.
Cryptocurrency has been a hot topic in the world of finance over the last couple of years. Despite the wild swings cryptocurrencies experienced in 2017, they continue to stimulate intense interest in their use and place in the world of the future. Other than the investors buying into cryptocurrencies solely for speculation purposes, a growing number of investors are viewing them as a viable long-term asset. These long-term investors are finding ways of putting Bitcoin in an IRA.
Though cryptocurrencies have proved quite volatile in the short term, they have demonstrated a gradual rise in price over the long-term. The dollar rate for a Bitcoin in 2019, for instance, is far higher than it was in its early days.
Silver and gold have been a measure of trade and asset value for thousands of years. And for a good reason. These metals have proven to be relatively stable even in the wake of soaring inflation. Ergo, consider having precious metal coins or bars in your IRA. Not just gold and silver but platinum and palladium too.
One of the downsides is that investment in these metals doesn’t come with interest or dividends, so don’t expect compounded return between withdrawal and purchase. It’s important to note that when you attain the age of 70.5 years, you must start taking the minimum distribution from a traditional IRA. If your IRA includes bullion, it must be valued each year to get an accurate figure of your minimum distribution.
A private mortgage isn’t something you’ll hear discussed often around your IRA options. In this case, you purchase a mortgage and therefore act as the lender for a borrower. The loan from your IRA is secured by the property.
You don’t own the property so you cannot enjoy the benefit of asset value appreciation. Nevertheless, the loan is backed by a tangible, low-risk asset (though the 2007-2010 foreclosure crisis proved this risk remains significant). The returns are lucrative because the interest rate is above the market.
Imagine you’ve stumbled upon an exceptional business for sale but don’t have the cash needed to purchase the company. What you may not know is that you can buy the business with your IRA.
There’s an important caveat though. The IRA cannot be used to benefit you before your retirement. Also, neither you nor your closest relatives can transact with the IRA. All this means you cannot work for the business nor manage it yourself. Because you can only be a passive investor, there must be a pretty strong case for the business’ prospects and stability for you to consider investing your IRA in it.
Before you invest in a non-traditional asset, you must confirm that the risk is acceptable. An IRA is, after all, a tool to grow and secure your nest egg. It’s expected to deliver adequate income throughout your retirement years. Your choice of one should, therefore, primarily be informed by your age and risk tolerance. In addition, investors must take the necessary steps to diversify their IRAs and shield themselves against the losses any one non-traditional asset may introduce.
Disclaimer: This content does not necessarily represent the views of IWB.