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What are your choices if you don’t want to do traditional retirement investing? Although stocks and bonds have been the traditional method of investing for quite some time, we have seen the market start to trend away from these methods, especially as of late.

Considering that the markets have become more volatile over the years, many people are looking for ways to maximize their investments with a safer option than traditional retirement accounts. Understanding the top 5 best alternative investments can benefit your bottom line for years to come.

People want more control over their financial futures and greater flexibility in their portfolios. The ability to incorporate different strategies into an investment portfolio allows them to fine-tune their investment portfolios. Enter self-directed IRAs (SDIRAs).

One of the main benefits of using SDIRAs is the ability to have more control over how your investment is used. There are many different options available when it comes to investing SDIRA funds. This article is going to highlight the different options and the pros and cons of each.

Most investors have found that the ability to diversify and be flexible with their investments is critical. There is a wide mix of traditional and non-traditional assets that can be used for retirement plans today.

Top 5 Best Alternative Investments: Why Use an SDIRA?

SDIRA's have become more popular in recent years due to their ability to hold a wide range of assets outside of stocks, bonds, and mutual funds, including real estate, gold and precious metals, hedge funds, commodities, and marketplace loans as well as private equity and debt. There are pros and cons to these alternative investments that should be taken into account with your goals and risk comfort level.

Traditional Assets for Investments

Traditionally, retirement accounts and investment portfolios are made up of stocks, bonds, and mutual funds. While these have been the most common types of investment options – for quite some time, in today’s market they are not always the safest bet. These traditional assets have traditionally been good for long-term investing, but there is always a risk to keep in mind.

Top 5 Best Alternative Investments

There are many options for your SDIRA investments. One of the main advantages of a SDIRA is the flexibility they provide as a buffer to offset the volatility of traditional assets. There are several different options for your investments with a SDIRA.

Gold and Precious Metals

Gold and other precious metals have increased in value in the last 20 years and deserve a second look as a top 5 best alternative investments. While there has been a small loss in value, precious metals are still trending upward and generally are a safer investment option. Gold prices generally move in the opposite direction of paper money which provides a safe cushion against inflation and creates a stable portfolio.

Using gold and precious metals is a safe choice for an SDIRA and they can help smooth out the risk over the long-term. Precious metals have long been used as a form of currency, and there has been a positive economic growth support for gold and other precious metals.

A SDIRA can hold gold bullion, gold coins, and gold bars, as well as silver, platinum, and palladium. The assets must meet two criteria to be eligible — the gold must be official currency and in the United States be at least 0.995 pure.

There are a few different options available when investing in gold and other precious metals using your SDIRA. There are also rules surrounding SDIRAs and how they can be used with gold and precious metals.

For example, to invest in gold through a self-directed IRA, in some cases the payment must be made through a trustee-to-trustee transfer. You cannot use a personal check to pay for the investment. There also needs to be an IRS-approved depository ready to receive the gold. Another option outside of physical bullion is to purchase gold mining stocks or exchange traded funds.

Hedge Funds and Private Equity

Hedge funds and private equity are unique options too. Private equity can be very lucrative, however it can also be feast or famine. There is more risk with these two types of investments than precious metals and real estate, but the gains with these investments can be much bigger than traditional stock market gains too. Keep in mind that the losses are riskier, and you cannot write them off on your taxes as you would be able to do with a traditional investment.

Regardless which top 5 best alternative investments you choose, remember:

It’s important to remember that you must become very familiar with SDIRA guidelines when investing in SDIRAs. The primary guideline that seems to get broken the most is that the only one who can benefit from the investment with a SDIRA is the IRA. The investor cannot double-dip and personally benefit from the investment outside of the IRA.

Private Placement LLCs

Private placement refers to investing in private entities, such as small businesses. Many of these companies are facing issues with getting traditional funding through banks and are having to look outside for their capital needs. This alternative investment has the potential to bring in stronger capital gains than traditional investments or CDs.

As with any investment, it is important to do your due diligence prior to investing. Some of these entities may not allow the investor to pull their capital or gains for a specific amount of time, and this is important to remember and take into consideration, especially if you are nearing retirement and need to have the funds available for the minimum distributions.

One of the main benefits of IRA investing is the tax benefits, but it’s important to remember that this alternative form of investment may require that some of the gains are taxable to the IRA.

Private Placement is a good long-term strategy but should rarely be used for quick turnarounds. The risk of loss with these varies based on the entity that the investment is being entrusted with. If the entity is stable, the risk of loss is minimal, however, if the entity is a startup or has hit rough times, there may be a greater risk involved.

Secured and Unsecured Notes

Notes are another one of the top 5 best alternative investments that some SDIRA investors choose to utilize. These notes can be in either a secure or unsecured form. These are used to make loans to others.

Secured Notes – These notes are backed by collateral, providing the lender with additional assurance that the loan will be repaid in some form.

Unsecured Notes – These notes are not backed by collateral and generally have a higher risk with them. These are used less frequently than secured notes.

Mortgage notes or trust deeds can be held in your SDIRA without going through alternative methods. These allow for the investor to invest in real estate without the upkeep and maintenance costs that come with traditional real estate investing as we discussed above. In this case, the property acts as collateral for the note for the mortgage. If the note is not kept up, the IRA can foreclose on the loan and take the appropriate actions to move forward to recover the investment.

Real Estate/Real Assets

Last but certainly not least, real estate tops our list of the top 5 best alternative investments. Using your SDIRA, you can hold assets such as single-family or multi-family homes, apartment complexes, commercial property, raw land, and even boat slips. These properties can add a stable investment to your portfolio to help balance out the volatility of traditional investments.

Read More: How to Invest In Real Estate With Your SDIRA

Real estate assets in your self-directed IRA are some of the most common types of alternative investments. When thinking about incorporating real estate in your investment portfolio and SDIRA, it’s important to keep in mind that there is a set of rules and guidelines that must be followed.

First, real estate investing with your SDIRA must be managed by a custodian who handles the transactions. Any transactions must be managed by the SDIRA and manager. This includes simple transactions such as maintenance. All of these transactions and payments must be made through the SDIRA.

Second, it’s important to remember that your IRA is a separate entity from you. The owner of the real estate is the IRA, not you directly. The title of the property will also reflect this.

Additionally, the real estate property you invest in with your IRA must be solely investment related. It cannot be a second property such as a vacation home. Another key factor to remember is that your investment property cannot be used or occupied by yourself or anyone the IRS deems as “disqualified” such as your spouse, children, parents, grandparents, and great-grandparents, service providers of your IRA, any entity that owns more than 50% of the property, as well as several others.

—–>FREE DOWNLOAD: 5 Easy Steps to Invest in Real Estate With Your SDIRA

What are the benefits of the top 5 best alternative investments with self-directed IRAs?

Investing in a SDIRA with alternative investments adds another layer of protection, stability (in some cases), and diversification for an investment portfolio. A self-directed IRA allows you to be more in control of your financial future and how much risk and gain you are willing to take on.

One of the most popular benefits of alternative investments is that the investor can diversify into holdings that do not directly correlate with the stock market. This allows the portfolio to be a bit more stable.

Another advantage is that they may be tax deferred or tax free depending on the setup of the SDIRA. There may be some penalties incurred for early withdrawal, but this is a major advantage to this method over other forms of investing or investing outside of an IRA. In fact, due to COVID-19 many retirement accounts are free from penalties through December 2020thanks to the CARES Act.

Many investors have looked into alternative investments with their retirement accounts after the economic downturn. These alternative investments allow investors to diversify and strengthen their portfolio against economic uncertainty.

Self-directed IRAs are popular primarily for their ability to be more flexible and invest in different options than traditional investments. These options have their pros and cons as any investment does, but they also allow the portfolio to be more diverse and stable in many cases.

For more information please email us at info@velocecapital.com


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“Investing in Gold with a Self-Directed IRA.” Gold IRA Guide, 9 Apr. 2014, www.goldiraguide.org/types-of-accounts/self-directed-ira-invest/.

Parker, Tim. “Using Your IRA to Buy Real Estate.” Investopedia, Investopedia, 9 Apr. 2020, www.investopedia.com/articles/personal-finance/111615/using-your-ira-buy-investment-property.asp.