The Self-Directed IRA: Why To Invest Your IRA Beyond Stocks, Bond & Mutual Funds

Summary: Putting some of your savings into an IRA is a real no-brainer. So much so that, according to the latest figures, the average IRA account today contains well over $25,000. But no matter which kind of IRA you have -- traditional, simple, SEP, Roth, (not to mention 401K or Keogh plans), chances are your money's invested entirely in market-oriented holdings - stocks, bonds, and mutual funds. The reason for this is simple; almost all IRA plans share one common attribute --: ...

Putting some of your savings into an IRA is a real no-brainer. So much so that, according to the latest figures, the average IRA account today contains well over $25,000. But no matter which kind of IRA you have -- traditional, simple, SEP, Roth, (not to mention 401K or Keogh plans), chances are your money's invested entirely in market-oriented holdings - stocks, bonds, and mutual funds. The reason for this is simple; almost all IRA plans share one common attribute --: they're administered by someone else. Employer-sponsored plans are run by a company-designated custodian, and normally offer a limited choice of places for you to invest - an assortment of mutual funds, for example. Even a privately-held IRA will usually be administered by your broker, banker, or financial advisor - so it's no surprise that the investment options available will be the ones they're most familiar with (and can most easily earn commissions on!). But in order to derive maximum benefit from their tax-deferred status, your retirement savings have to be invested for maximum growth. And limiting your IRA to market-oriented vehicles may not be the best way to achieve this. What long-term average return can you reasonably expect from stocks? According to some experts, a reasonable estimate is currently no more than 7% to 8%. No less an authority than Berkshire Hathaway founder Warren Buffett touts the following formula: "3 to 4% for real GDP growth + 2% for inflation + 2% for dividend yield = 7 to 8% long-term total return on stocks." And, in his most recent annual letter to shareholders, Buffett said he's "found very few attractive securities to buy." If Warren Buffett doesn't think he can make much money in the stock market, what chance does he average guy have? If you decide it's time to diversify your IRA beyond stocks, bonds and mutuals, the next question is