Making the best choices for your financial future means that you need to choose the investments that are best suited for your investment goals, tolerance for risk, and other factors unique to your individual situation. Choosing the most appropriate investments is particularly important when it comes to your self-directed IRA. After all, most retirement savers build their nest eggs over many decades, so there’s a lot of time for their investment choices to do the most benefit.
But seasoned investors may find that the types of investments that they currently hold in their taxable investment accounts, or even their other retirement accounts (such as a 401(k) at work) don’t provide them with exactly what they’re looking for. These individuals may want to consider some of the lesser known investments that are available in their self-directed IRAs.
Precious Metals. Precious metals have long been a favorite of those who seek out alternative types of investment. Gold and silver, for example, have for centuries been recognized as ways to hedge against other types of investment risk, political instability, etc. With a self-directed IRA, and account holder can invest in those metals directly, by requesting that the account custodian purchase precious metal bullion or coins.
Note that those coins cannot be “collectible” in the sense that their value must derive from their precious metal content rather than their scarcity. So gold coins recently struck by the U.S. mint will likely qualify, but collectible gold coins from the Wild West days almost certainly wouldn’t qualify.
The account owner is also prohibited from themselves possessing the precious metals that they purchase with their self-directed IRA, so they’ll need to work together with their account custodian in order to insure proper safekeeping of their precious metal investments. Individuals who don’t want to worry about the logistics of investing in physical precious metals can choose to invest in precious metals focused mutual funds or ETFs.
Private Mortgages. One of the biggest consequences of the significant decline in the broader housing market that occurred a few years ago is that lending standards for home mortgages have tightened. This means that it’s become increasingly difficult for many potential homeowners to get a loan. This is true for first time homebuyers as well as homeowners looking to trade up to their next home.
You can use your self-directed IRA to make private mortgages to potential homebuyers. It’s important that you document these loans properly, so you’ll need to get professional help in drawing up all the paperwork.
The scope of potential investments within a self-directed IRA is broad. It’s important to look beyond what you might already be familiar with, and look to take advantage of some of the lesser known investment types that are available to you.