When most people think of Self-Directed IRA options, they often think of aggressive, volatile investments: venture capital, closely-held companies, and the like. But there is nothing about self-directed investing that requires you to cling to the outer frontiers of the risk curve.
The whole point of self-direction is to increase your control of your own investments so that you can more closely manage your exposure to risk. We want you to have great returns, of course – but on a risk-adjusted basis. And that means that, from time to time, it’s prudent to trim the sails, batten down the hatches, and prepare for rough seas.
When it’s time to dial back on the risk exposure, what are your Self-Directed IRA options?
Cash. There’s nothing wrong with holding cash and cash equivalents for a time, while you look about for a profitable and acceptably safe investment opportunity. As long as you keep the money within your retirement account, you don’t have to worry about capital gains taxes. This means that you can move in and out of an asset in a Self-Directed IRA, 401(k), SEP, SIMPLE, Coverdell or even a health savings account without regard to tax consequences. Don’t be afraid to go to cash or money markets when the situation warrants.
Fixed Annuities. A fixed annuity may work well for those who want to hold a safe position for a longer period of time. These products are insurance products, not investment products. As such, you can buy them with specific guarantees. The insurance company takes on the investment risk – they just guarantee you a specific percentage return.
Of course, these guarantees aren’t free – the annuity company must charge a bit to compensate itself for taking on the risk of having to fulfill these guarantees even during poor investment clients. Are the guarantees worth the extra fees? That’s up to you to decide. For some they are. For others, not so much.
Real Estate. True, real estate is not a risk-free investment option. It never has been and never will be – especially once you add leverage to the mix. But real estate has one advantage to it that no paper security and no paper contract can match: It’s tangible. That means that no matter what happens, you can pretty much be assured that regardless of the investment advice, the value of the land and structures on it (which you can usually) isn’t going to go to zero.
Gold. Like real estate, gold and other precious metals aren’t risk-free investments. However, gold has proven to be an effective safe harbor during times of uncertainty for thousands of years – and it really shines during economic crises. However, don’t believe anyone who tells you that gold never goes down in price. It absolutely does bump around against the dollar – and has been known to have long down periods. Over time, however, gold has gained against the dollar roughly in tandem with inflation experience.
Furthermore, taken together, real estate and gold can combine to make an effective hedge against inflation, over the long term, simply because of the essential tangibility of both items.
As you can see, there is more than one way to define ‘safety.’
Do you want to learn more about safety and Self-Directed IRA options? Call us today at 866-7500-IRA (472), or visit us at www.americanira.com.
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