HOW SELF-DIRECTED IRA'S CAN PROVIDE GREATER DIVERSIFICATION
FIRST, WHAT IS NOT A SELF-DIRECTED IRA ?
Many investors think that since they have a choice between Mutual funds, Exchange-Traded Funds, stocks and bonds, that these traditional IRA Trust or custodial accounts are self-directed. NOT SO.
In a true self-directed IRA, you may invest in just about anything other than life insurance and collectibles. Many alternative investments (alternative to traditional investments such as stocks and bonds) provide greater diversification for the portfolio when combined with some part of the portfolio made up of stock and bond mutual funds or ETF's
You have a voice in the part of the portfolio that contains investments that you know. If you are astute in managing rental estate, you may have some or all of your IRA funds invested in properties that you select.
You must first find an IRA trustee that allows such an arrangement. The Trustee wil allow you to use a self-directed IRA and, also, allow you to choose the real properties of your choice.
Other alternative investments you may choose are:
* Raw land
* First and second mortgages
* Options to buy and sell real estate
* Private Placements L.L.C.
* Precious metals
As you hve probably surmised by now, you have to know what you are doing. Self-directed is just that self-directed. You are required to select the investment you want your trustee to buy, you choose the investments to sell and when. You become the investment manager of your self-directed IRA.
In the traditional IRA setting, the portfolio manager makes these decisions alone.
These alternative investments do not decline in value at the time of a bear market for stocks and bonds. Thus, you may expect a winner in your portfolio regardless of the ups and downs of the market.
Be aware of the pitfalls associated with self-directed IRAs. You and your family may not use the assets contained in the portfolio (e.g., the beach house cannot be rented by you).
Additionally, self-directed IRAs are hands-on arrangement. Most of the management duties (e.g., buying and selling properties, etc.) are your responsibilities.
The self-directed IRA trustee will help you to obey the rules and avoid prohibited transactions.
My recommended trustee for your self-directed IRA is The Entrust Group, www.the entrust group.com, 1-800-392-9653. No, I have no connection with this firm.