Your Retirement Assets Probably Aren’t As Diversified As They Should Be

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Are your retirement accounts limited to traditional assets, such as stocks and bonds? If so, your investments probably aren’t as diversified as they could be. Many Americans are simply unaware that they have options for their retirement savings beyond the most well-known retirement assets. However, after engaging in a program of self-education, many will find exciting options that could supercharge their retirement savings goals.

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Old-School Investment Advice Is Good - Up to a Point

You've heard the age-old advice about not putting all your eggs into the same basket. Diversification is the practice of buying and holding different types of investments. Market forces affect different assets at different times and in different ways, so the goal of this strategy is to limit risk by reducing your exposure to any single investment.

And it's sound advice. For example, financial conditions that favor stock values have traditionally been different than environments that enable higher bond prices. Taking this thought further, the use of mutual funds spread the risk of investing in individual stocks or bonds.

But there's a flaw in the approach that most take to diversify their assets. That's because, for many people, diversification simply means investing in the most traditional of assets, such as stocks, bonds and mutual funds. With such a mix, how "diversified" can a portfolio really be? The reality is that there are many other legitimate assets that investors don't know they can consider – and that goes especially so for use within a retirement account.

Why Walk Away from Investment Opportunity?

Investors who use the traditional, balanced (but limited) portfolio approach to retirement savings lose opportunity by not trying something different.

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The real power of diversification occurs when investors buy and hold many types of assets. However, many investors fail to take the leap into what we might call extended diversification for any number of reasons, such as the fear of the unknown, or perhaps a lack of investment knowledge and experience.

That said, if you're willing to educate yourself, you'll open up your retirement accounts to a whole range of asset options.

Diversifying the 21st Century Way

Extended diversification requires a different set of resources than the traditional investment approach. In the past, the recipe for investment success was to choose the right stock, bond or fund and hold on to it.

Modern diversification enables investors to invest in a full range of investment assets. But, it also requires self-education to learn about alternative investments and the discipline to hold on to them.

Self-Directed IRAs: Expanded Investment Opportunity

Investors interested in holding a wide range of long-term alternative investments should consider Self-Directed individual retirement accounts (SDIRAs). This type of retirement account, allowed under IRS code, differs from conventional IRAs. In SDIRAs, you can:

  • Invest in alternative assets. And, you can combine them with traditional investments within your IRA.
  • Have complete control for choosing and managing the investment choices in your IRA. No brokers or investment advisors taking fees or commissions out of your money – just you.
  • Work with a qualified, Self-Directed IRA custodian. The custodian provides all of the administrative services for your account, including making any required financial disclosures.

The major benefit is that Self-Directed IRAs enable investors to build a truly diverse portfolio and defer taxes until funds are withdrawn.

Alternative investments go far beyond traditional assets. They include:

  • Cryptocurrencies such as Bitcoin, Ethereum and Ripple.
  • Real estate land and investment trusts. You can invest in real estate (commercial and residential property and raw land). And, REITs enable you to invest in real estate without becoming a landlord.
  • Precious metals such as gold and silver.
  • Commodities such as crude oil or coffee.
  • Hedge funds, a relatively unregulated investment vehicle. Investors use high-risk securities and sophisticated methods in hope of big payoffs.
  • Venture capital funds, in which investors seek private equity stakes in high-risk/high-return opportunities, in enterprises with strong growth potential. IT and biotech startups are often funded this way.
  • Tax lien certificates, a claim against a real estate property that has a lien placed upon it due to unpaid taxes. These certificates are generally sold to investors through an auction process.
  • Exchange-traded funds are marketable securities that follow the value of an index, a commodity or a group of assets like an index fund. ETFs trade like a common stock on a stock exchange.

This is a very short list of alternative investments that you can include in a Self-Directed IRA. There are many more possibilities that are eligible under IRS code.

Cryptocurrencies in a Modern Balanced Portfolio

If you want to add an asset with high growth potential to your retirement portfolio, consider investing in cryptocurrencies. These forms of digital currency use sophisticated codes to protect, control the supply of and confirm the transfer of funds, without a central bank.

Cryptocurrencies are a new, exciting type of alternative investment, which can provide growth potential to a traditional mix of retirement investments.

From January through December 2017, prices of well-known cryptocurrencies grew explosively. For example, Bitcoin and Ethereum increased over 1,200% and 9,000%, respectively. That said, volatility is high. It's a fast-growing market designed for long-term investors who believe in the potential of this new asset and won't allow short-term fluctuations to concern them. IF you think  crypto is  a good option and have extra money to allocate you may want to consider after discussing with your CPA or financial advisor.

Are Self-Directed IRAs and Alternative Assets Part of Your Investment Future?

If greater flexibility and control over retirement account appeals to you, then consider moving some of your retirement investments into a Self-Directed IRA.

But, before getting started, remember: Stay on the lookout for exciting new asset classes, such as cryptocurrencies although always use caution and do not put money in risky products which you cannot afford to lose. Learn as much as you can about Self-Directed IRAs and alternative investments. Finally, buy only the retirement assets that you are comfortable holding on the long term.

Article by BitIRA

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