The current behavior of the broad stock market has scared away many individual investors. In fact, in the first half of 2012, stock-based mutual funds (and even passively managed index funds) have experienced significant outflows of capital. It’s thought that many individual investors have simply lost faith in the ability of the public markets to provide enough information for them to make well informed investment decisions.
As a result, many of these investors are turning to other types of investments, such as private equity, real estate and precious metals. These types of assets are absolutely necessary in today’s market because they can provide a much higher level of current income than is available through bonds or CDs (or even dividend paying stocks), and they can offer a hedge against the macroeconomic risks that seem to be affecting the broad markets.
For example, given that interest rates are at near historic lows (and barely above zero percent for short term bank CDs), real estate can be one of the best ways to generate income for your investment account. This is particularly the case due to two prevailing factors.
First, many people have lost their homes in the past decade (or have been unable to secure a mortgage because of the increasingly stringent lending standards that have recently come into force) but they still need someplace to live. This has led to a greater demand for rental properties. Second, the number of homes in foreclosure or pre-foreclosure proceedings continues to be high, so investors who are able to pay cash for properties (such as those with healthy balances in their IRAs) can find some great investment opportunities.
Similarly, experienced investors know that certain types of private equity investments can provide a high level of current income, as well as the opportunity for long-term capital growth. Having access to these types of investments is absolutely essential when investors can’t find the types of investment profiles they want in the public markets.
Unfortunately, far too many people mistakenly believe that they can’t invest in these assets with what is likely to be the largest single component of their liquid wealth – their IRA accounts.
The problem comes not from the IRA structure itself (which is actually quite flexible), but from the self-limiting policies of most IRA custodians. Custodians like banks and discount investment brokerages simply aren’t set up to do the work necessary to help their clients to invest in things other than publicly traded securities. These custodians would rather make their account administration and custodial duties as easy as possible, rather than allowing their clients the greatest number of investment options.
In contrast, Quest Trust Company provides so-called “self-directed” custodial services for traditional and Roth IRAs. A self-directed IRA with Quest Trust Company will let you take advantage of the full range of investment options that are legally authorized for IRAs.