Alternative Investments for an IRA

A money market is definitely among the safest investments you can have in an Individual Retirement Account (IRA).  Unfortunately that safety comes with a heavy price in low yields.  This is especially true during times of nationwide financial distress like following the Financial Crisis of 2007-2009.  Investors who desire higher returns but are not quite ready to take on the high risks involved with direct stock investment have a plethora of alternative investment options although most are not well known or publicized.  Alternative investments come with risks but are generally not correlated with the stock market so offer protection during crashes.

Most IRA owners are not aware that you can own hard assets like real estate as well as precious metals, livestock, and oil in the form of a promissory note in their IRA.  The key to being able to invest in these alternative investments lies within the IRA custodian.  They must allow self-directed investments.  You can find out if yours does by reading the custodian agreement and disclosures. counted 25 such custodians that currently offer this feature so be sure to shop around if yours does not.  Here is a list of the most popular self-directed IRA custodians:

  • Equity Trust
  • Pensco
  • Guidant Financial Group
  • Entrust Administration Inc
  • Trust Administration Services Corp

The same advantages of a Roth IRA over a traditional IRA apply to self-directed individual retirement accounts.  Obviously a Roth is the way to go with its tax free withdrawals if you are young.  It may be worth going through a Roth conversion and paying taxes now while rates are low in exchange for a tax free distribution later one when you may be in a higher tax bracket.

There has been a rise in fraudulent scams that involved self-directed IRAs in recent years.  It is important that you perform some due diligence before choosing your custodian to ensure they are reputable.  If you are worried about such activity or just feel more comfortable sticking with the mainstream investment companies you can still get involved in alternative investments.

An exchange traded fund (ETF) with the symbol VNR is a great way to own an alternative investment for readers.  This ETF owns property in US based oil and natural gas reserves.  Ownership of natural resources is a fantastic way to diversify and a great hedge against inflation.  A growing number of venture capital firms involved in investment in natural resources including power generation and sustainable energy understand this concept.  This VNR ETF from Vanguard offers a phenomenal yield of 9% with a low expense ratio.