Now more than ever before, successful retirement saving lies with the individual investor. Unfortunately, though, over the past decade or so, many investors feel unsettled, confused, and oftentimes even scared, fearing that their savings will disappear in the next market “correction.”
And, they aren’t wrong!
The regular volatility of the stock market often includes 3- or 4-figure daily swings. So, many people have stopped investing in equities. Investors often feel that they will end up with nothing – even after years of saving.
Market volatility, combined with disappearing employer-sponsored pension plans, and a shaky Social Security system, has caused a retirement savings “crisis.”
So, how can investors take more control of their financial futures?
One option is the IRA, or Individual Retirement Account. This tax-advantaged account became available in the mid-1970s. Since that time, many investors have contributed regularly into a variety of financial “tools” like stocks, bonds, and mutual funds.
Yet, even with the many allowable investment choices for IRA accounts, most investors are (unknowingly) not taking full advantage of the additional options that are available to them.
In addition, the few investors who inquire about other possible alternatives like gold and precious metals are told by their financial advisors that “it can’t be done.”
What these investors are not told, though, is that it can actually be done – but just not with their current financial firms. Getting an account up and running is not as complex as you might think. It does, however, require that you have a real self-directed IRA and/or 401(k) account.
What is a Truly Self-Directed Account?
If you’re allowed to choose from different investment vehicles for your IRA account, you may have been led to believe that you own a “self-directed” IRA. But this isn’t true.
For instance, you may be able to choose from thousands of mutual funds, individual stocks, and bonds with your regular IRA account. But, if can’t hold “non-traditional” assets like gold, precious metals, and real estate, the IRA account is not really self-directed.
Self-directed IRA accounts are a type of individual retirement account that can hold a variety of investments, such as gold and other precious metals.
A custodian (or trustee) administers self-directed IRAs. But, the IRA account holder manages the account and selects the investments for it. Thus, the name self-directed IRAs.1
Few IRA investors realize that they can “self-direct” the money in their IRAs into gold and other tangible assets, while at the same time benefiting from the tax advantages that Individual Retirement Accounts can provide.
In addition, just like regular IRAs, self-directed IRA accounts can be either traditional or Roth. So, you can choose whether you want to take your tax benefits now or wait and receive tax-free income in the future.
Why Truly Self-Directed IRAs Offer More Opportunity
Setting aside money is only the beginning of your retirement savings journey. A much larger part of the equation is the investment choices that you have available, as well as the way you go about participating (or not participating) in them.
Today’s stock market uncertainty and low interest rates have caused investors to examine all of the potential investment alternatives – including financial vehicles that are considered “non-traditional.”
In fact, diversifying your retirement investments could be a strategy to keep your account going, even in the most turbulent financial environments. That’s what you can do with a self-directed IRA.
Allowable Investments for Self-Directed IRAs
“Traditional” investments like stocks, bonds, and mutual funds are allowed in both regular and self-directed IRAs. But, self-directed accounts also allow you to choose from a much longer list of financial vehicles.
In fact, the Internal Revenue Service does not place many limits on the types of assets that a self-directed IRA account holder may invest in. These can include the following:
- Commercial paper
- Residential and commercial real estate
- Deeds and mortgages (as well as second mortgages)
- Private notes and loans
- Private placements
- Limited Liability Companies
- Limited Partnerships
- Raw land
- Mobile homes
The term “self-directed” means that account holders can choose to invest their IRA funds into almost any investment vehicle of their choice. More options mean more flexibility, as well as the opportunity to get more benefits, based on your specific objectives.
The Many Benefits of Adding “Alternative” Investments to Your Retirement Savings
Investors have always been allowed to include alternative investments like gold and precious metals in IRA accounts – even though few investors (and financial advisors) know about these options.
There are several reasons for this. First, traditional financial institutions like banks and brokerage houses have little incentive to recommend investments other than the ones that they offer themselves – which provide them with profitable commissions and fees.
As an investor, you owe it to yourself to understand how beneficial it can be to own tangible assets like gold in your IRA. For instance, not only can this strategy offer more appreciation potential, but it can also provide you with peace of mind. In this case, unlike stocks, bonds, and mutual funds, you can see and inspect the gold that is in your portfolio.
In addition, unlike owning shares of stock in publicly traded companies, physical gold investments don’t just “vanish” due to mismanagement. In fact, based on the fact that gold is a finite resource, your investment could increase in value when the supply of gold is low.
What to Look for Before You Add Gold and Other Precious Medals to a Retirement Account
Opening a self-directed IRA does not mean that you have to close your current IRA (if you already have one). You can fund the new, self-directed account with cash, or you can transfer as much (or as little) money as you wish from a current IRA.
But, before you make a commitment to open a gold IRA or retirement account, it is important to keep in mind the following criteria regarding the company/custodian you use:
- Track Record – Similar to choosing any other type of financial advisor, it is important that the company has a good reputation. When researching gold brokers, you should check with the Better Business Bureau, and read any reviews left by current and/or past customers.
- Background and Qualifications – The company should also have the proper licenses for selling gold and any other precious metals that you’re planning to buy. If the company is not able or willing to share proof of these licenses, it may not be the right option for you.
- Transparency – Most financial-related transactions require some type of charges or fees. The same is true when investing in gold IRA and retirement accounts. But knowing upfront what these charges are can help you to expect and to avoid any unpleasant surprises in the future.
A self-directed IRA can provide you with a considerable amount of control over which investments you put in your account. In addition, this type of IRA account gives you the ability to choose from an almost limitless array of investment options, rather than choosing only from what your bank or broker has to offer.