Adding diversity to retirement investments is the key to weathering ups and downs in the market and greater overall economy. While some combination of stocks, bonds, and cash should probably make up the bulk of retirement portfolios, adding a few alternative asset classes can help keep balances up during traditional stock market downturns. There are several types of alternative investments outside traditional stock and bond funds.
Many investors consider precious metals to be an investment to hedge against inflation and an unstable economy. During recent recession years, gold and precious metals have certainly held their value while other investments were all over the charts.
There are a few ways to invest in precious metals. If you have a vault or other secure storage space, bars and coins known as bullion can be purchased, but this is not always a practical solution for most investors due to the difficulty of transport. It also might be difficult to find a buyer if a quick sale was necessary.
Probably the easiest way to add this type investment to your portfolio is by purchasing funds such as a gold IRA retirement account. Gold IRA’s can be new or established by rolling over an existing account. Taxation and IRS rules are the same as with other traditional IRA’s.
Buying real estate as a retirement investment certainly has its share of pros and cons, but if you are careful about not paying too much and can hold the property for 10 years or more, income properties generally do quite well.
Even if you don’t have the time or skills to manage rental property for yourself, using a management company is one way of turning real estate investments into somewhat passive income that can continue to cash flow into retirement.
If investing in actual property is too overwhelming or if the initial down payment and expenses are too much, investors may also choose to purchase REIT funds to add diversity to their retirement portfolios without taking on as much risk.
Peer to peer or P2P lending is a service where ordinary people lend money to others seeking loans for various reasons. Usually this is done through an intermediary like Lending Club or Prosper. Borrowers often receive better terms than with traditional lenders, and investors can choose a variety of notes across a broad range of risk levels in order to protect their investments.
With peer lending, there is always a risk that a borrower might default on a loan, but if lenders are careful to limit their investments to high rated borrowers, there is less chance of a loan not being repaid.
Alternative Investments are Smart for Retirement
While alternative choices might seem a bit scary at first, they should be included to add diversity to retirement investments. Most experts recommend that 10 percent of assets should be in investments that can provide cushion when the stock market is down. By having a variety of investment choices in your retirement fund, you can be confident that your portfolio will be able to handle whatever ups and downs occur.
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