The law allows IRA investments to be a wide variety of things. Investments in individual retirement accounts can be traditional stocks and bonds, but also mutual funds, commodities and real estate. IRA investments may be handled by a financial adviser or by the person themselves. In the case where the owner of the account handles their own investments, this is known as a self-directed IRA.
Before looking at what can be included as part of IRA investments, it may be beneficial to look at a few things the law does not allow to be included. Life insurance, S corporations and collectible options such as gems, cards and coins are all off limits. Still, even with these limitations, there are a number of other things that can constitute IRA investments, some of which may be surprising to some people.
Mutual funds are, perhaps, the most popular types of investments for IRA accounts. Those who want to build up a large reserve of cash when they retire, yet protect themselves against drastic losses, may consider a mutual fund. These funds are often designed in a way to take advantage of the fact that when one segment of the economy is doing bad, others are usually doing well. Therefore, there is always some sort of balance, even with growth being the ultimate goal. These funds may include a balance of stocks and bonds, with that balance mainly depending on how close the owner is to retiring.
One of the more unusual types of IRA investments is real estate. If a fund has enough equity to invest, real estate can be an option. This may include both undeveloped land and developed land. In some cases, various IRA owners can share joint ownership in a piece of real estate. However, there are other rules related to real estate investments in an IRA that need to be adhered to. For more information, contact a financial adviser.
IRA investments can also include commodities, such as oil and grain. However, it should be remembered that commodities are often very volatile. Significant gains can be realized, but they can also be wiped out in a matter of months. It is not uncommon by commodities to rise or fall by 50 percent or more in a given year.
Given this volatility, which is certainly present in commodities and may exist in real estate to some extent, it is not recommended to make these a significant portion of any IRA investments. Rather, they could be use to diversify a portfolio for those who wish to do so. Making them a central portion of the investment is a very risky move.
As with all IRA investments, it should be remembered that contribution limits still apply. Just because an investor may be interested in buying a piece of real estate does not mean contribution limits can be exceeded in order to make the purchase. However, once the equity is built up, the money can be shifted without penalty almost solely as the investor wishes.