Investors who don’t feel comfortable with the current valuations that are available in the stock and bond markets (or perhaps who just don’t trust those markets) need to look for other investment opportunities. This might also be true for individuals who hold a self-directed Roth IRA, and are looking to diversify beyond the types of assets they already hold in their taxable investment accounts.
Here are four less common ideas for growing your self-directed IRA
Farmland. We’ve all heard the folksy justification for owning real estate – and specifically land – as an investment, namely that “they’re not making it anymore.” The scarcity considerations that usually make residential real estate a good long-term investment apply even more strongly to farmland.
In fact, with a growing population and their housing needs, farmland may actually be becoming scarcer as time passes. So with increasing food demand across the globe, many believe that prime farmland is one of the strongest investments available when considering long-term growth opportunities. Furthermore, you don’t need to actually farm the land yourself – in growing regions it shouldn’t be too difficult to find an operation to use your land each year.
If you’re interested in a greater measure of control over the farming operations, you can either use your self-directed IRA to put out those operations – or you can consider buying an existing working farm. Farms that have a particular market focus, such as specializing in organic crops or a particular specialty item – may have a tremendous upside.
Exchange Traded Stock Options. Another uncommon investing idea is to become more active in exchange traded stock options. “Calls” (which gives the holder the right to buy a particular stock at a particular price within a specified time frame) and “puts” (which gives the holder the right to sell a particular stock at a particular price within a specified time frame) can be combined and structured in a wide variety of trading strategies.
These strategies can be used to reduce or take on extra market risk (with corresponding potential rewards), or to take a position in a particular security that will profit depending on whether you believe the underlying stock price will go up, go down or remained relatively flat.
A Small Business. You can use your self-directed Roth IRA to purchase a small local business and own it outright. This can be attractive if you believe the market will soon grow, or is being underserved by the way the business is currently run. Just understand that when your self-directed IRA is the business owner you cannot draw a salary from the business operations.
A Franchise. At the other end of the spectrum for owning a business, you can use your account to buy into a well-known franchise that’s new to your area. Obviously buying a larger franchise will require that you have a sizable nest egg, and you’ll need to account for all other expenses in the first few years while you are franchise takes root.
Of course, there may also be some investment opportunities between the “purely local” and large national chain extremes. There are many attractive regional franchise business opportunities in virtually every part of the country.
As with any investment, make sure you fully appreciate the potential risks and losses that come with it, and that virtually every investment comes with a risk of loss.