Due to the nervousness inherent in financial markets, diversification is a critical part of a balanced portfolio for long-term success. A well-balanced portfolio is susceptible to collapse only if the entire economy (including the dollar) takes a nose-dive all at once. In such an unlikely case, you might be better served to have stockpiles of gold, food, salt, and weapons in your basement. However a well-diversified portfolio is a reliable insurance policy against market volatility.

True diversification is not just a healthy mix of stocks and bonds. It is also commodities, real estate, timberland, and more. Real estate is a linchpin of diversification strategies because it is a tangible asset that will almost never lose most of its value. For true diversification, your real estate holdings should also be somewhat separated geographically. If all of your properties sit on top of a little-known fault line, you could be in for trouble.

For years many people considered mutual funds and blue-chip stocks as the only ways to diversify their IRA portfolios. This is mostly because of restrictions placed on investments by traditional IRA custodians. In recent years, however, people have begun to realize that the laws governing IRAs do not disallow as much as they had thought. Pioneering companies started developing plan documents for self-directed IRAs and offering them to investors.

A Whole New World of IRA Diversification

With self-directed IRA LLCs, investors can diversify their portfolios in as many different ways as they choose (including the stock and bond markets). Traditional investment strategies can be used, also, not only those specifically designed to restrictive IRAs. In the past, creating such an account would have required overcoming significant hurdles of ignorance and uncertainty, but now that work has been done and you can reap the benefits.

Written By Scott Janko, The National Association of Financial and Estate Planning (NAFEP)For more details on the Self Directed IRA go to www.nafep.com

    Posted in Investing from Investor on 17. Nov. 2008