Investment Portfolio Diversification is Vital to Improve Return
Most financial planners agree that investment portfolio diversification is one of the most important aspects of successful retirement investing. Having exposure to a broad range of assets lowers overall portfolio risk and leads to more consistent returns. The only way to achieve true diversification in your retirement plan is with a self directed IRA account.
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At the close of trading on June 28, 2001, the S&P 500 Index stood at 1226.20. On July 15, 2005, more than four years later, the same index closed at 1226.50. While the stock market has gone absolutely nowhere for four years, many real estate investors have seen their portfolios double or triple in value in the same period. The performance of each of these markets relative to each other shows how important diversification is to retirement investing.
Like most people, when you think of the investment opportunities available to your IRA, you probably think about mutual funds, stocks, and bonds. You probably did not know that you can also invest in many other assets including real estate, mortgages, notes, and private businesses. And like most people, you probably were not aware that these options have been available to you since 1974 when Congress passed the Employee Retirement Income and Security Act (ERISA).
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With the right guidance and using the right structure, your IRA investment opportunities are almost unlimited. A self directed IRA enables you to set this up. The IRS does not specify what investments you can make, but it does detail those that you may not make. These are called prohibited transactions. Prohibited transactions include life insurance, collectibles (works of art, rugs, stamps, gems), and transactions with a disqualified person. “You” are a disqualified person, as are your family members (except for your siblings) and fiduciaries. There are some exceptions to prohibited transactions, and you may even apply for a specific exemption through the private letter ruling process.
It is highly recommended that you do not attempt
self directed IRA retirement investing on your own. The
rules are complex, the administrative work is daunting, and failure
to comply with the rules or file all necessary reports can lead to
serious penalties, including forfeiture of your IRA’s assets. The
best way to protect yourself from these pitfalls and enjoy true
diversification is to enlist a strong team of advisors who are
knowledgeable in the self-directed industry. Surround yourself with
the best advisors and start enjoying the rewards of self-directed
retirement investing today!
John Laughlin
President, Security Trust Company, Inc.
Article 1 -
Investment
Portfolio Diversification
Article 2 -
Checkbook Control IRA
Article 3
- Self Directed IRA Investment Options
