There are a lot of reasons to be uncertain about the future. First on that list: no one has a crystal ball. Even experienced, savvy investors are not always able to see the unpredictable things that happen to markets. This is especially relevant for anyone planning for retirement. Retirement investors not only have to think about the future, but they have to think about it in a way that results in them having a sizeable nest egg when they’re ready to stop working. That leads us to our next question: are Self-Directed IRAs the best way to prepare?
That is a bit like asking whether investing itself is a good way to prepare for an uncertain future. It certainly can be. But with the Self-Directed IRA in particular, investors take their success into their own hands. And whether or not you’re prepared for an uncertain future will depend on the way you go about it.
How to Have Confidence in Your Self-Directed IRA
The first step in the process is to be confident in the Self-Directed IRA itself. You want to work with a reputable Self-Directed IRA administration firm. You want to know that the people you work with are in your corner and have an intense focus for getting the details right. At American IRA, for example, we have numerous people on our staff who have worked with Self-Directed IRAs for a long time. It is not just a hobby.
Getting the paperwork right also means doing the research to know what Self-Directed IRAs are all about. For instance, it helps to know the specific benefits of a Self-Directed IRA. If these benefits match up with your specific strategy—such as investing in real estate within a Self-Directed IRA, it can be a powerful alignment of investing strategy. If you have confidence in your ability to invest in real estate, you will know that a Self-Directed IRA can be a powerful tool for maximizing these returns.
Diversification as a Hedge Against an Uncertain Future
Why do we say that the future is uncertain? It is not only because that is the nature of trying to predict the future. It is because there are legitimate financial and economic problems that will have to be dealt with. And some of these problems are predictable. Our responses to them are not.
For instance, we know that the baby boomers—the largest generation in human history—are nearing retirement right now. Many are already retired. As they retire, these shifts have the power to change the global economy. Rather than putting money into the system, baby boomers start withdrawing money. Selling stocks, selling funds, and looking to live off of the money they’ve saved.
For young investors, that means that the uncertain future has a potential wrench in it. And one possible way to hedge against this uncertainty is by expanding one’s portfolio diversification.
The Self-Directed IRA is a powerful tool for diversification because it allows investors to broaden their asset base. Rather than investing only in stocks and bonds—which many baby boomers may begin to sell as they withdraw funds for retirement—an investor can open their horizons. They can expand to real estate, precious metals, private companies, and more. And they can do this investing within a Self-Directed IRA that offers retirement protections. It is a powerful way to build wealth, even in the uncertain environment that we will face in the next generation.