Self-Directed IRA Expert: Horizon Trust BlogJanuary 22, 2020by horizontrustTop Self-Directed IRA Investment Alternatives to the Stock Market

Instead of relying on the traditional mutual funds, stocks, bonds, etc., a self-directed IRA gives you the freedom to leverage alternative investments.

Self-directed IRAs are becoming popular among investors who want more options and flexibility. Instead of relying on the traditional mutual funds, stocks, bonds, etc., a self-directed IRA gives you the freedom to leverage alternative investments. There are plenty of alternative investment opportunities, but here are a few of the most popular options.

Real Estate

For many investors, real estate offers a long-term investment alternatives strategy that can, in some situations, yield on-going returns and increase wealth. Investing in real estate allows you to leverage your retirement savings to purchase single-family or multi-family homes, apartment buildings, or commercial properties, lots and raw land, etc.

Whichever route you choose, it’s important to note that there are specific rules that govern real estate investment as it relates to self-directed IRA. Ultimately, you cannot purchase IRA property that would result in indirect benefits or in a transaction that would be considered “self-dealing.”

For instance, you can’t purchase a home to live in, rent office space for your own business, or even rent or sell to family. Also, all costs and revenue must flow out of and back into the IRA and can’t be mixed with your personal finances.


Promissory Notes (Deed trusts, tax liens, etc.)

A promissory note is an agreement between a lender and a borrower in which the borrower agrees to pay back a loan, plus interest, by the end of a specified term. When you invest in a promissory note using IRA funds, you become the lender and the agreement is legally binding.

Promissory notes can be secured and backed by collateral (e.g., real estate, stocks/shares, equipment, etc.), or they can be unsecured and note supported by any collateral. Though both options can yield results, secured promissory notes are considered less of a risk. As such, many investors choose to invest in mortgage notes, trust deeds, and tax liens, which are all back by collateral.

Though there are risks associated with all types of investments, promissory note investments often represent an opportunity to invest in a way that results in a predictable return.


Another popular investment alternative option, at least for investors with an entrepreneurial spirit, is to use self-directed IRA funds to gain business equity. In this case, you can use your funds to invest in your own business, franchise opportunities, or even startups — as long as you follow a few fundamental rules. One of the most significant benefits of this is the ability to invest in a business opportunity while still benefiting from the IRA tax advantages.

Free Gift

Like the other investment alternatives opportunities discussed above, business equity also carries specific rules about how you invest and the role you can play in this business. If you choose to invest in business equity, you’ll need to maintain a relatively passive position. You can’t have a controlling interest or own more than 50 percent of the business. Further, you can’t use your retirement funds to benefit you now — everything must be tied back to the IRA.

Precious Metals

Precious metals are high-value, naturally occurring metallic chemical elements, including gold, silver, platinum, copper, and palladium. Why invest in precious metals? For many investors, precious metals, particularly gold and silver, are considered low risk. This is particularly true for metals like gold and silver, which are frequently used in currency, jewelry, and industrial materials.

Like all investment alternatives, it’s essential to research each precious metal of your choice before you leverage your IRA to direct your purchase. Keep in mind that unlike some investments, like real estate or promissory notes, precious metals will fluctuate, and earnings are often realized over several years. That means precious metals can be a great option if you’re looking to diversify your portfolio and have several years until retirement.

Alternative investment opportunities like those above allow you to create a strong portfolio that can yield both short- and long-term returns. The key to any investment, including those made with your self-directed IRA, is to research the opportunity and to work closely with a trusted custodian like Horizon Trust. We offer clients the opportunity to pursue numerous investment options, not just those listed above. Contact us today to learn more about alternative investments and how you can build a robust retirement portfolio.