Business Owners – Are You Diversifying from Your Business?

by Preferred Trust | Mar 1, 2021 | Article, Sponsored

Portfolio management and asset allocation concept : Dollar bag, financial products on balance scale e.g ETFs, REITs, stocks, commodities, bonds, mutual funds, depicts balancing between risk and return

Last month, we discussed how a Self-Directed SEP IRA could be used as a tool to help reinforce your tax sheltering strategy and supplement your business cashflow at the same time. The above question may seem contradictory to our previous topic, but bear with us, there is a method to the madness.

Using your real estate niche to grow your qualified funds is a great start if you are just beginning to work with a Self-Directed SEP IRA. However, as a savvy business owner you know that it is not enough to just have a great start. You need to think long-term and be adaptable to maintain the momentum of your success. This is when your Self-Directed SEP IRA evolves from just a shelter from taxes to also a shelter from fluctuations experienced by your real estate business. Diversifying into other alternative investments can help mitigate significant instability with cashflow and/or capital preservation. This concept may be familiar to you, and you may already be diversifying your qualified funds in the conventional market (i.e., stocks, bonds, and mutual funds). But ask yourself this, is your portfolio truly balanced when you expose yourself to only two markets?

With a Self-Directed SEP IRA, you can diversify across other alternative investments that have minimal correlation to the markets you may already be exposed to, have experienced historically higher returns than the public market, have varying risk profiles, and exhibit key features similar to what may have attracted you to real estate investments in the first place. For example, you can invest in natural resources like precious metals, oil, gas, and timber. Natural resources are tangible assets, so just like real property, this gives these investments a form of capital preservation that you will not see with conventional investments. Another example are private equity investments, which over a 20-year period have historically outperformed the Russell 2000, the S&P 500, and venture capital in annual returns by over 5%, as reported in the U.S. Private Equity Index by Cambridge Associates.

Of course, like with your real estate investments, it is important to perform your due diligence and gauge your tolerance for risk before engaging in alternatives. If you are too wary to branch out from real estate right away but still desire diversification, other opportunities include Trust Deeds or Mortgage Notes. Depending on who you work with, Trust Deeds or Mortgage Notes can be a passive vehicle to invest in turnkey real estate development across different regions, borrowers, and even asset type (i.e., commercial, or residential). This would enable you to diversify from where and how you already participate in real estate, and you get the collateral of real property on your investment with fixed returns.

To learn more about Self-Directed SEP IRAs, you can call Preferred Trust Company at 888-990-7892 or visit our website at www.preferredtrustcompany.com.