Are 401ks Losing Ground?
The stock market has become much more volatile in recent years. The market crash in 2008 resulted in massive losses to people’s 401K and IRA holdings. Also, in May of 2012, a large majority of people who have 401Ks and IRAs lost their gains for the year in just one day. Since 2008, the government has also increased spending to historically high levels leading to much higher rates of inflation, which will continue to hurt the stock market. These trends are leading many people to think about alternatives to a traditional 401K or IRA, and rightfully so.
Considering alternatives investments to traditional retirement accounts could be a very good move because of recent economic woes, but only if you know what you are doing. One option that you may be able to benefit more from is investing your IRA [3] in real estate. Legally speaking, an IRA can actually own real estate and other assets as well. So instead of taking out money to purchase real estate and paying taxes on the money you take out, you could simply let your IRA pay for the property without being taxed on the money.
Since most IRAs wont allow you to invest directly in these things, you first have to transfer your IRA to a company that offers self-directed IRAs. These types of IRAs currently make up about 2% of all IRA holdings and are becoming increasingly popular. Once you have transferred your IRA to one of these accounts, you have a lot more freedom to invest your money the way you want. In addition to using these IRAs to buy real estate, you can also use them to buy other commodities.
Using your IRA to purchase gold is a good strategy during times of inflation. Because of economic instability, the price of gold has been rising since 2000. As long as the government continues to spend excessively, gold prices will probably continue to rise in the coming years. In addition to using your IRA to buy gold, you can use it to buy reserves like gas, oil, and private equity as well.
A Self-directed IRA Can Offer Freedom and Large Earnings
Although self-directed IRAs offer you much more freedom and larger potential earnings, you need to be careful with your investments since fraud is a fairly common occurrence in the self-directed market.
As an example, between 2005 and 2010, a Ponzi Scheme run by an alleged retirement management service cost 120 IRA owners approximately $120 million. So keep in mind that all self-directed IRAs come with a “buyer beware” warning and make sure to research potential companies thoroughly before you transfer your IRA to them. As a general rule, you should only invest a portion of your IRA into a self-directed IRA because of the risk inherent in these types of investments. Yet keeping your money in the stock market is risky as well which is why self-directed IRAs are becoming a more appealing option.
Have you left your job recently or are planning to leave a job soon... follow the link to learn the importance of taking your 401K with you [4]!
Have you invested in alternative assets... we’d love to hear about it, please comment below?