Self Directed Retirement Accounts Give Investors More Control in Uncertain Economic Times

Turning passion into profit, SDRAs allow investors to diversify tax-deferred retirement savings by investing in something they know and understand

PORTLAND, Maine (April 28, 2010) - Investors with a passion are increasingly turning to a Self Directed Retirement Account (SDRA) to invest their retirement savings in what they know best – whether it’s real estate, domain names, a business or even horses.

SDRAs are providing a growing number of investors with what they are looking for in these uncertain times – more control over their retirement nest eggs. Self directed investing also offers an opportunity for true diversification and the option to create wealth outside traditional stocks, bonds and mutual funds.

With SDRAs, investors are able to pursue investments in their core competency. If they understand real estate, the restaurant business, farm animals, golf courses, RV parks, even show horses, they can use that knowledge or passion to invest in those assets within a qualified retirement account. The non-traditional investment opportunities are virtually endless, with a few exceptions per the Internal Revenue Code (IRC).

Combining investments people know and understand with the advantages of an IRA or 401(k) – namely, tax-deferred growth – is proving to be a powerful investment strategy and a logical hedge against market volatility.

A word of caution though, non-traditional investing through SDRAs is generally not a do-it-yourself proposition, requiring additional knowledge of the rules, regulations and guidelines set forth within the IRC. The best chance of succeeding with non-traditional investing is to work with professional advisory firms that specialize in this area and can take the extra steps needed to make sure investments through the SDRA are in compliance with the guidelines.

But finding an advisor with non-traditional investing experience is not as easy as it may sound. American investors have been able to legally invest in almost any asset ever since the Individual Retirement Account (IRA) was created in 1974. Even so, few advisors nationwide have taken on the challenge to truly understand this concept and help make it work for their clients.

Instead, the great mass of investors for years were steered toward traditional stocks, bonds and mutual funds to the point that most believe Wall Street is the only option for their retirement accounts.

But recent market volatility – and the prospect of more frequent fluctuations – has prompted savvy investors to look for additional ways to diversify, sparking interest in self directed investing.

The process starts with the creation of a retirement account with a qualified custodian that allows for non-traditional investments, funded either through new retirement savings or by rolling over all or a portion of an existing IRA (traditional and Roth) or any retirement account, such as a 401(k), Simplified Employee Pension Plans (SEPs), Savings Incentive Match Plan for Employees (SIMPLE), Health Savings Accounts (HSAs) and Coverdell Education Savings Accounts (CESAs).

Once created, funds in the SDRA can be used to purchase a virtually endless range of assets, per the IRC, excluding life insurance and collectibles.

Real estate is one of the most popular choices for non-traditional investing with a SDRA since many investors have owned a home and understand how real estate and mortgages function. Real estate is also a physical asset investors can see and touch, and in some cases exercise some control over. With real estate it is unlikely that the value of a given property will decline to zero due to the intrinsic value of the land itself.

An example of a more “outside the box” investment choice that lends itself to an SDRA is horses. My firm, NUA Advisors, an independent Registered Investment Advisory firm, advised a client with a passion for horses who knew the ins and outs of buying, training and selling horses and how to create wealth with this asset. Working closely with his team of advisors, trainers, farm hands, and others, he was able to capitalize on his passion within his retirement account.

An independent wealth management advisor specializing in non-traditional investing will make sure the investment idea is a good portfolio allocation fit and also develop an exit strategy for the investor. The professional advisor helps manage risk, rules and regulations, and provides an overall investment strategy, ensuring diversification.

The advisor also can help those interested in self directed investing who may not have a firm idea or interest, by providing a range of non-traditional options that protect clients by meeting high standards and complying with all guidelines and regulations.

No matter what your passion or knowledge base happens to be, there is bound to be a non-traditional investment available that can generate retirement wealth. Using investments where the investor has the proper knowledge and understanding, along with proper allocation and risk management, SDRAs may provide the diversification needed to hedge against the ups and downs of Wall Street and secure a comfortable retirement.
About the Author: Laurie Bachelder is a principal and chief compliance officer of NUA Advisors, LLC, an independent Registered Investment Advisory firm bridging the gap between traditional and non-traditional investing with offices in Portland, Maine and Lexington, Mass. For more information, contact NUA Advisors, LLC at http://www.nuaadvisors.com or Ms. Bachelder directly at laurie@nuaadvisors.com.

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