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In past decades, there were limited options in terms of saving for retirement. This made it more challenging to save enough money for the future, and that has led to a retirement crisis for many older adults. Fortunately, there are more options available in the modern age, thanks in part to changing tax laws and lighter IRS restrictions. One newer option that's growing in popularity is the self-directed IRA. As you learn more about these types of retirement accounts and how you can use them to grow wealth faster, you'll see why more people are turning to self-directed IRAs for their investing needs.
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Why Should You Open a Self-Directed IRA?
If you haven't already started your self-directed IRA, you might be wondering why there's so much buzz about them among younger investors. There are many different advantages to maintaining a self-directed IRA. Those benefits are discussed below to demonstrate why this type of investing account may be the preferred option for the majority of future people who want to build a protected retirement nest egg.
More Investing Freedom
There are definite advantages to joining an employer-sponsored 401k program. Primarily, employer-matched contributions will help you double your savings for as long as you contribute to the plan. A 401k also helps novice investors get started. The guidance that the plan administrator offers usually includes access to a financial advisor to help investors learn more about using stocks, mutual funds, and other investment tools to grow retirement money. However, those benefits come with strings. You'll be limited in terms of which stocks and funds are available through the plan.
When you roll those savings over into a self-directed IRA, you'll have much more freedom in choosing the investments you want to pursue. You're free to invest in almost any stock, including IPO stocks. You'll also have a wider range of choices when it comes to investing in funds. There is the additional option of choosing alternative investments, which isn't something you can do with a traditional IRA or 401k.
Better Options for Diversification
Any advisor or financial analyst will discuss the importance of diversification with you. In the past, this meant choosing a wide range of industries when investing in mutual funds or stocks. If a natural disaster or political upheaval adversely affected a particular industry and those stock values dropped, you would have your other investment as a safety net. In that case, the majority of your wealth would be protected.
What happens when an event affects the market as a whole? A depression or recession would negatively impact all stocks and funds simultaneously. Even though you might have a diverse investment portfolio, a market-wide crash could cost you all of your savings. However, maintaining a self-directed IRA provides the option to diversify your investments even further. Rather than buying a wide range of paper investments, you can use your self-directed IRA to invest in real estate, cryptocurrency, precious metals, and other nontraditional investments. These investments aren't typically affected in the same way as paper investments.
Alternative Investments Offer Faster Growth
When it comes to stocks and mutual funds, even your most aggressive investing strategy will result in moderate growth. It's rare to find a stock that skyrockets and provides massive growth in a short amount of time. Alternative investments, such as real estate, offer steadier and faster growth to help investors grow their wealth faster. More importantly, some of these investment options, such as buying gold, offer a way to protect your existing retirement savings as you pursue a higher-risk strategy for investing.
What Can You Do With Your IRA Money?
While you can invest in stocks, mutual funds, and ETFs with your self-directed IRA, that's not why most investors choose to open this type of account. It's the alternative investment options that attract most people to this type of account. While there are still some IRS limitations, there are more choices in investing with a self-directed IRA.
Once your self-directed IRA is funded, the money in the account can be used to invest in gold, silver, palladium, and platinum. However, more people choose to invest in gold than the other metals due to its consistent growth and value as a commodity. When investing in any precious metal, you must be certain they meet the IRS' rules for purity and fineness. Additionally, the government requires that you store your precious metals in an approved U.S. depository. Fortunately, most gold IRA companies partner with regulated depositories to make this step more convenient for the investor.
You can also use your self-directed IRA to invest in real estate. However, it's important to work with a custodian who knows the rules regarding this type of investment. They will know how the IRS regulates rental payments and other capital generated by real estate holdings. In addition to investing in apartments and other types of rental property, you can invest your self-directed IRA funds in commercial property, mortgage notes, land, and trust deeds.
This is an option that allows you to use your money as a lending instrument. For each loan, your self-directed IRA must hold a promissory note that details the terms of the loan. Any loan payments and interest received will go into the IRA and remain tax-deferred until you begin taking disbursements at retirement age. You can work through lending services to generate a steady stream of borrowers to ensure your savings are passively growing over time.
Another option is to use your self-directed IRA money to invest in private start-up businesses. This is an attractive option for investors who want to support people, new concepts, or causes while also growing their wealth. Of the options listed here, private equity offers the highest risks. Although the rewards may be just as high, it's important to choose your investments wisely. Since a large number of start-ups fail, you won't want to attach your retirement savings to a doomed venture. Proper research and due diligence are especially important in investing in start-up businesses.
Why You Should Invest in Gold With Your IRA
While there are many diverse options for using your self-directed IRA to increase your retirement savings, gold is consistently the most popular option. This is because gold excels where other types of investments fail. Here are just a few reasons to dedicate your IRA funds to gold investing.
Gold Performs Contrary to Paper Investments
When an event causes a drop in the financial market, stocks and funds across the board will lose value. This results in a loss of confidence among investors who will turn to gold as an alternative investment in a time of crisis. As a result, the demand for gold will increase rapidly, causing the value of the precious metal to rise as well. If you already own gold bars or coins, your gold will become more valuable. This would be an opportune time to sell your gold holdings.
Your Retirement Savings Will Be Protected
It's never wise to dedicate all of your savings to an aggressive or high-risk investment strategy. If your instincts are wrong or something unexpected occurs, you could lose everything you have saved. This is also a possibility with money that's strictly invested in stocks or funds. A market crash can leave you in a very bad financial position.
However, having physical gold stored in a secure vault will save you from losing everything. Even if you just have 15% of your wealth stored in gold, that money will be protected against loss. That's because economic changes that negatively impact paper investments usually have the opposite effects on precious metals. Depending on how much gold you own, you may be able to sell it and earn enough money to cover the losses you suffered with your paper investments. The performance of gold is why many investors use precious metals as a means of protecting their savings until they retire.
Gold Reacts Positively to Inflation
Whether inflation is sudden or occurs over the gradual passage of time, it will occur and drive up prices. This is a process that starts with the devaluation of paper money. Since paper money is worth less, you'll need more of it to pay for the same goods and services. Those physical products become more valuable as paper currency becomes less valuable.
While the increase in value of products makes groceries and fuel more expensive, it has a similar effect on physical assets. As you hold onto your gold bars and coins, their value will increase over time. In truth, the value of gold remains consistent, but the devaluation of paper currency increases gold's practical worth. As such, your gold will have greater buying power in the future, and that will make it more valuable to you and other investors.
What Gold Companies Will Help You Get Started
While there are many gold IRA companies, each one offers different services and features. The three companies mentioned here maintain consistently high customer service ratings and have large numbers of positive reviews. While you should research any organization before investing money with them, the following gold IRA businesses provide a good starting point.
If you’re looking for a company that offers a wide range of precious metals, Augusta is a great place to start. Their customer service team will help you set up your accounts, choose a self-directed IRA custodian, and set up your vault with an authorized depository.
In addition to the initial start-up assistance, they provide customer service for as long as you maintain an open account with them. They are known for providing knowledgeable assistance in helping investors use precious metals to prepare for retirement. They provide reliable information about precious metals investing and the market in real time.
While some companies are only interested in selling their products, Goldco is dedicated to building long-term associations with investors. This drive has led to the company offering an extensive library of educational materials in multimedia formats. Even before you open an account with them, they will send you a free start-up kit that explains their services while providing information about gold and silver investing. Additionally, they partner with IRA custodians and IRS-regulated depositories to ensure they can meet every investor’s needs.
While they don’t publicly post their fee schedule, they will provide any fee information you request. Although they deal primarily in gold and silver, they do offer palladium and platinum products for investors and collectors. Upon opening an account with them, Goldco will assign a customer service representative to work with you. The representative can answer questions about your account as well as provide you with incarnation about precious metals investing.
Started by a Los Angeles family, American Hartford Gold has grown from its small business roots to service investors across the country. In spite of their growth, they have maintained the philosophy and values that made their business a success. They are recognized for offering low fees that are transparent and fair.
They are also known for offering one of the best precious metals buyback programs in the industry. Similar to the other companies, they provide lifelong customer service, a wide range of precious metals, and depository partnerships for added convenience. They also work with established IRA custodians to help investors who haven’t previously opened a self-directed IRA.
While starting a self-directed IRA for investing in gold can be a complex process, you won't have to set your account up in the dark. Many gold IRA companies offer assistance in account set-ups and in conducting 401k rollovers. This simplifies the process and will help you to start buying gold sooner. Once you get everything set up, you'll find that investing in gold is as straightforward as trading stocks or buying into mutual funds.