by After retiring early and maxing out our 401(k)s, we found ourselves in an interesting position. While we had successfully built up our retirement accounts, we realized we were somewhat limited in our investment options. That’s when we discovered the power of self-directed IRAs (SDIRAs).
What is a Self-Directed IRA?
A self-directed IRA is an individual retirement account that allows you to invest in a wider range of assets than traditional IRAs. While you can still invest in stocks and bonds, SDIRAs open up possibilities like real estate, precious metals, and more.
Why We Chose to Open a Self-Directed IRA
- Diversification: We wanted to reduce our reliance on stocks and bonds.
- Control: SDIRAs give us more say in where our money is invested.
- Real Estate Focus: We were particularly interested in increasing our real estate investments.
Our SDIRA Strategy
We decided to allocate about one-third of our portfolio to our new SDIRA, primarily focusing on real estate investments. This money came from investment gains since our retirement, allowing us to maintain our original financial independence target in traditional IRAs.
The Power of Cash in Our SDIRA
While some may criticize holding cash, we’ve found it invaluable in our SDIRA. It allows us to act quickly on good real estate deals, giving us an edge in a competitive market.
Unexpected Benefits
Interestingly, our decision to move funds into cash for our SDIRA had some unintended positive consequences. From February 2021 to June 2022, while stocks and bonds experienced negative returns, our cash maintained a small positive return of 0.21%.
Looking Ahead
We’re excited about the possibilities our SDIRA offers. We’ve already closed on our first real estate transaction and are looking forward to exploring other investment opportunities not available through traditional IRAs.
Final Thoughts
Opening a self-directed IRA has been a game-changer for us in our post-FIRE journey. It’s allowed us to diversify our investments, gain more control over our retirement funds, and explore new financial opportunities.
We’re still learning and growing in this space, and we’d love to hear from you. Have you considered opening a self-directed IRA? What has been your experience with alternative investments in retirement accounts?
Stay tuned for more detailed posts about our SDIRA journey, including the pros and cons of holding real estate in tax-deferred accounts and the specifics of managing an LLC within an SDIRA.
Remember, while SDIRAs offer exciting opportunities, they also come with their own set of rules and risks. Always do your due diligence and consider consulting with a financial advisor before making significant changes to your retirement strategy.
