Posts Tagged ‘Investing’

Funding an IRA Account with Alternative Investments

Monday, April 23rd, 2018

funding investments 2

Whether you’ve been diligent about funding your retirement account for years, putting away the recommended 10% of your paychecks into an IRA or 401K, or if you’re just starting to save at 25 or 26, the last thing that you want is to watch your hard-earned funds dissipate into fees, or completely tank into nothing during a stock market crash.

So what do you do to protect yourself? Diversify, and invest in alternative investments that are outside of the stock market. You have options when it comes to investing, but as with any investing, there are pros and cons when it comes to risk and reward.

The IRA Investments

For decades, IRAs and other tax-deferred retirement plans, like a 401K, have been used to fund retirement accounts for millions of Americans. In most cases, these accounts are funded with investments like stocks, bonds, mutual funds, unit investment trusts, CDs, treasury securities, and fixed, indexed, and variable annuity contracts.

Other less common investments such as mortgage-backed securities, precious metals IRAs, and real estate investment trusts (REITs) have at times been used by the more savvy investor.

There are certain types of investments have always been prohibited inside IRAs and qualified plans, such as life insurance, collectibles and antiques, and real estate that is being used by the IRA owner. These restrictions are found in the IRS Code and cannot be breached under any circumstances.

New Trends in Your IRA

Although this category of investments is hardly appropriate for everyone, it has become appealing for more and more investors in the wake of the market meltdowns over the past few years.

Those who have seen their retirement account balances shrink to a fraction of what they were in the ’90s have become more inclined to seek alternative avenues that have little or no real correlation to the stock and bond markets. These investments offer the potential of substantial gains for those who are able to absorb their risks.

Tapping into Multiple Retirement Income Avenues

Monday, February 19th, 2018

If you’re a lucky enough of a person to have a pension, a matching 401K, or any other type of retirement saving option, and you’re fully taking advantage of those benefits, then this article may not be for you. This is more geared towards the 70% of American’s who have either less than $1000 saved for retirement or nothing at all. The thing is, there is more than one way to save for retirement, you don’t have to fully depend on your employer.

Self-directed IRA

A self-directed individual retirement account is an account that you can open with the custodian of your choosing (so long as they offer this account type, some don’t for varying reasons). You contribute funds to your account either after-tax as a Roth IRA or before-tax, as a Traditional IRA. The reason investors like self-directed IRAs is that they’re self-directed, meaning you choose what your money is invested in. You can invest outside of the stock market and into real estate, precious metals, small businesses, farmland, the options are almost endless.

Rental income from SDIRA

Among the short list of assets you can invest in above, we’re going to focus on one, real estate. The reason for this is obvious, right? The money that can be earned on investment property is what makes it such a lucrative and sought-after asset type. Not only is there money to be made on buying and selling, but getting a steady income from tenants is what we’re all ultimately after. When you buy a property through your self-directed IRA, any and all costs associated with that property are paid for through your IRA. Any repairs, HOA fees, maintenance, it’s all paid for by the IRA.

Annuities

Annuities can be looked at as retirement insurance, because they’re essentially for uncertain times. To put it frankly, the longer you live, the more care you’ll need, and thus, the more strain on your finances. Even if you were diligent about saving for retirement all throughout your career, it sometimes might not be enough. A fixed annuity, which offers a lifetime income stream at a set rate of interest, is one way to manage that risk. You can even buy deferred annuities that don’t pay out until you reach a certain age. Once they kick in they offer bigger payouts than immediate-annuity products.

The Rules of Buying Property with your Real Estate IRA

Monday, February 12th, 2018

Real estate is one of the most sought-after and lucrative hard asset types that investors love. It’s popular because it’s not just single-family homes, but commercial real estate, farmland, business parks, apartment complexes, and more.
What most Americans don’t know is that you’re allowed to invest in these types of real estate with your self-directed IRA, and any gains made off of your investments go back into your retirement account.
As with any investment, there are rules that you have to follow to make sure that your IRA is compliant with IRS laws, so let’s go over a few rules.

Your personal use

When real estate is purchased as an investment property, it almost seems like second nature to want to inhabit that property. But when your IRA has purchased the home, your IRA is the technical owner, not you, unfortunately. Neither you or your family are allowed to use the property for personal use, either as rental tenants, overnight guests, or anything in between.

Self-dealing

This rule seems like it should be fairly self-explanatory, and seems easy to avoid, but if you’re found violating these rules, your IRA could be disqualified. Self-dealing is when the IRA owner uses their IRA for personal gain or promotes their own self-interest. Say if you’re looking for a single-family home to buy with your real estate IRA, and your own home is for sale, so you think about buying your home with your IRA. That’s self-dealing. Because you directly benefit from your IRA buying your home, it’s not allowed.

Limited Liability Company

A Limited Liability Company is better known as an LLC, and an LLC paired with your real estate IRA isn’t a rule, but a perk. By opening an LLC, you will then have checkbook control, a physical checkbook that allows you to pay fees, services, any costs affiliated with the property your IRA owns.

Shaping an Investment Portfolio for The Coming Year

Monday, January 15th, 2018

We enter 2018 in the midst of what has been reported as the second-longest running bull market ever. Accordingly, many investors are wondering how they should adjust their investment strategies. After all, given the age of the bull market and the high equity valuations it has produced, it would not be surprising to see it turn in a more bearish direction.

A CNBC report highlights the trend toward passive investment and away from actively managed funds. While passive index fund investment has always been a good way to collect gains as the overall economy grows, the strategy has been particularly effective in these recent years of high correlations (the tendencies of stocks to rise or fall in sync). As correlations fall, however, active management may make a comeback.

Don’t pay attention to the panic

While there is some expectation that current valuations will eventually have to lead to corrections and lower expectations, it is not necessarily inevitable that this is the case. For one thing, conditions such as “an oncoming recession, a hostile Fed, dangerous inflation, investor exuberance, speculative valuations, or a geopolitical shock” that predict declines do not appear on the horizon. Accordingly, the typical duration of past bull markets do not have to be seen as absolute limits on this or future markets.

Take heed of the GOP tax bill

The tax reform bill expected from President Trump and the Republican Congress is likely to have benefits for stock investors. This legislation has left existing rules for both traditional and Roth IRAs as well as 401(k) plans largely intact. Roth IRAs, which allow after-tax dollars to be contributed toward future tax-free earnings, may become more attractive due to lower overall income tax rates. Moreover, the planned corporate tax cuts obviously constitute projected boosts for business profitability and valuation.

The bottom line from these considerations is that there is a good reason to blend both passive and active investments in your portfolio. Passive investments remain viable options, especially for new and long-term investors, and they will continue to provide broad market exposure. However, it is perhaps wise to consider adding some active management back into your strategy as we are likely entering a period when gains will not be shared as broadly across the market as they have been in recent years.

Get diversified

Diversification remains a staple of investment, and investors may want to consider working a self-directed IRA into their portfolios. A self-directed IRA allows investors to get the benefits of an IRA with investments outside of stocks and bonds. Allowable alternate investments include real estate, private tax liens, precious metals like gold and silver, lending notes, and even cryptocurrency. Protecting your money means getting strategic about where it’s invested, and having a say in what assets are in your portfolio is up to you in 2018.

While pending tax reform may end up being a drag on it, real estate, according to Investopedia, remains a good way to balance out the volatility of the stock market. Tellingly, the wealthiest investors tend to include real estate in their portfolios.