Ask someone about their concept of retirement investing and you will likely get some degree of the same answer: it’s all about stocks. Having money in a brokerage account that you put towards stocks, stock funds, or bonds is the traditional way to invest for the long term. And this is a perfectly valid strategy, particularly given the returns of the S&P 500 over the long haul. Many people are perfectly successful stocking money away in an S&P 500 Index Fund. But what if you want more control over the IRA, in the form of a Self-Directed IRA? Can you still pursue stocks and bonds, or should you then consider opening your retirement strategy to other retirement assets like real estate, private loans, Single Member LLCs, or precious metals? Here’s what you will need to know.
Using a Self-Directed IRA to Buy Stocks
For most people, it’s not necessary to use a Self-Directed IRA for purchasing stocks and funds. The IRA you already have through an employer, for example, will typically yield a perfectly acceptable variety of stock funds that you can choose from as you work through your retirement strategy.
If you want to buy stocks within a retirement account, you will not find it difficult. Even those limited options—such as retirement brokerage firms that allow you to choose from a variety of “funds of funds”—will offer plenty of exposure to the stock market.
The question is how you want to diversify your investments. For many, that means simply diversifying with a variety of funds. But what if you wanted more than that? What if you wanted to move beyond ideas like including a variety of stocks and own a variety of asset types? That’s where the Self-Directed IRA comes in.
Diversifying Beyond the Stock Market
The primary role of the Self-Directed IRA is to give yourself the bandwidth to invest in other assets beyond the stock market. These assets can add some security to your retirement strategy, as they will help you “decouple” yourself from the returns in the stock market and instead create a wider portfolio that does not succumb to every turn in the Dow Jones Industrial Average. Here are some of the most popular ways to achieve that kind of diversification:
- Real Estate. Real estate can be tremendous for a retirement investor, as it helps you establish real property that hedges against inflation and establishes a cash flow that can continue to provide you returns so long as you have tenants in your rental property.
- Precious metals. If you are uncertain about the economic outlook and you want to make sure that you maintain at least some standard of wealth throughout turbulent conditions, precious metals are a valid option for preserving wealth.
- Private lending. Private lending allows you to seek steady cash flow and regular returns, so long as you make wise investments when it comes to these loans.
- Private stock. It’s still possible to own stock in private companies when you use a Self-Directed IRA. Smart and savvy investors can generate tremendous returns when they make one well-placed investment in an up-and-coming private company.
A brokerage account is easy to set up, and you do not need to hold a Self-Directed IRA to do so. But if you want to go beyond stocks, the Self-Directed IRA is an invaluable tool for increasing your wealth, broadening your exposure to different types of assets, and providing yourself with a well-grounded retirement strategy that can hold up in a variety of financial environments.