An IRA is an Individual Retirement Arrangement, commonly known as an Individual Retirement Account, which allows individuals to put aside money for retirement. The IRA was established in the United States by the Employee Retirement Income Security Act of 1974. To encourage savings, there are many tax benefits associated with these retirement accounts. Normal IRA’s were in existence before ERISA, but were mainly originated in 1975. Self–Directed IRA’s have been permitted into the ERISA since 1975.
The term “self–directed” simply means that you, as the individual account owner, have complete control over selecting and directing your individual retirement account investments. A self–directed IRA is no different than any other IRA, but is unique and exclusive because of its non-restrictive investment options. A self–directed account will give you access to nontraditional investable assets, such as real estate, notes, limited partnerships, commercial paper, and many other alternative investments.
If you are like many Americans and are skeptical of the future of the stock market, most investors are seeking alternative ways to generate a solid return on their assets. Alternative investing strategies inside a self–directed IRA allows individuals to have control, maintain tax free or tax deferred growth, and to be more educated on what they are investing in. According to a market rate calculator from 2000-2014 on www.moneychimp.com, the average rate of return on the S&P 500 is 6.07% with Dividends, but the true compounded annualized growth return is 4.20% over that time period. The growth inside the S&P 500 index, without dividends, produced an average return of 4.07% from 2000-2014. The true compounded annual growth return is 2.27% in the S&P 500 for the same time period. There is a difference in the average rate of return versus the compounded annual growth return because of market volatility. One should be more concerned with the compounded annual growth versus the average at all times inside the stock market. The compounded annual growth return tells the true net story of how your money is moving.
Therefore, with these low returns along with our low interest rate environment, people are looking for alternative investment strategies. One way to look at taking control of your investing as opposed to delegating it so somebody else is through self–directed IRA private lending.
Self Directed IRA private lending provides private secured loans to businesses, which serves as a profitable means to diversify your retirement portfolio. Since 2008, banks, credit unions, and traditional lending institutions have tightened their restrictions in providing capital to businesses and this has forced many businesses to search for needed capital in the secondary market. This void has left a huge opportunity for smaller lenders to service the needs of reputable entrepreneurs and other quality borrowers who need financing. Many times they have established track records and solid assets backing the loan application, but are still unable to obtain bank financing. This type of lending has the potential to produce above average rates of return on a consistent basis with minimal risk.