IRAs are a great way to save for retirement, but they are merely a vehicle. What you choose to invest in will ultimately determine just how successful your retirement planning is. Choose the wrong investment and you could lose everything. Choose wisely, and your money could multiply many times over. Feeling the pressure yet? The first step in making a great choice, is to educate yourself.
Since most investing articles out there focus on traditional stock and bond investments, we are specifically going to focus on alternative investments for the purpose of this article. We aren’t here to say which investment is better, as that will be different for everyone depending on the particular situation. Typically, though, the best investment plan is going to incorporate a nice mix of traditional and alternative investments. As with any other investment decision, it is absolutely critical that you fully understand exactly what you’re investing in, and it is always advisable to discuss your plans in depth with a trusted financial professional.
“Ignorance is bliss” – to quote from the poet Thomas Gray – but not when it comes to investing. Investors need to know everything they can about how the financial world works before going down the road of alternative investments. Knowledge is power, so learning is an essential part of the process. Fisher Investments has a Flickr account – the photograph and video sharing website – where they display a whole range of graphs and charts that show worldwide trends or specific country trends on financial issues linked to a range of topics, such as loan growth, lending surges and the LIBOR rate.
It's a useful tool to help get across the amount of information that is out there when dealing with the financial world, and the global economy needs to be understood just as much as the domestic one.
The case for alternative investments
The meltdown of financial markets during the last recession led many investors to look at different ways to grow their money outside of the usual stocks and bonds, and rightly so. Investors that moved out of stocks, and into things like gold or inversed ETFs did extremely well when the broader market tanked.
Before going down the alternative investments route, however, it's essential to get the right professional advice so that mistakes can be avoided. Sound advice will not take away all the risks of investing – all investments have some amount of risk – but there are also significant rewards to be had with a successful investment strategy.
Very few successful investors work on their own so it's always worth considering having a great team of professionals to help devise and implement strategies.
Once research is completed and with the assistance of professionals, investors can look to a number of possible alternative investment opportunities:
- Real estate: there are many different types of real estate investments available to you in IRAs, depending on what you’re looking for. You can invest in residential real estate, commercial real estate, and just about anything and everything in between. To get you started, though, here is a list of the top real estate ETFs as found by US News.
- Commodities: if you’re looking for investments that hold value when the stock market falls, commodities are a good place to look. When there is broad market panic investors tend to put their money in things like gold. There are a lot of different commodities you can invest in, from precious metals to food and oil. Or you can invest in baskets of commodities if you want to diversify. If you like economics, and the principles of supply and demand, you’ll love these investments. Here is a list of the top commodities ETFs by US News.
- Foreign investments: while the United States is still the financial center of the world, it is certainly not the only financial market. If you’re worried about the potential for the U.S. markets to fall, then you might want to consider looking abroad for your next investment. Be careful, though, when you invest outside the U.S. you need to take into account currency fluctuation. Conversion rates between currencies can eat away at investment gains, or amplify them – just make sure you understand what you’re getting into. Most IRA custodians in the U.S. will only allow you to invest in foreign markets through ADRs, ETFs and other funds, but a select number like E-Trade will allow you to set up foreign trading accounts to invest directly in the foreign markets, if you so desire.
These are not meant to represent all the alternative investment opportunities available to you inside your IRA, but rather to give you an idea of what’s out there. Your next step is to have a talk with your investment advisors and determine if alternative investments are right for you, and if so in what capacity.