Traditional retirement plans limit investors to stocks, bonds, and mutual funds, but what if you could unlock an entirely new asset class—one that offers diversification, control, and high-return potential? With a Self-Directed IRA (SDIRA), you can. This powerful retirement tool allows you to invest in alternative assets such as real estate, private lending, and private equity—strategies that sophisticated investors have used for decades to build wealth and preserve capital.Investors who want to take a hands-on approach to their retirement portfolio can leverage these unique options to diversify their holdings and enhance potential returns. They can choose assets that align with their expertise and long-term wealth-building strategies to maximize their retirement portfolio.
Even if you have a conventional IRA or 401(k) and want to keep that in place, you can open a self-directed IRA to invest in alternative assets.
And when it comes to capturing long-term growth, alternative investments include more than a few opportunities.
Using Self-Directed IRAs as a Long-Term Growth Strategy
Investors who use self-directed IRAs for long-term growth often focus on alternative assets that have the potential to provide stability, cash flow, and appreciation over time.
Below are familiar and unique strategies self-directed investors use to achieve their goals through alternative investments. Remember, traditional retirement accounts held with mainstream custodians often do not allow these alternative options. SDIRAs give investors an edge above the rest in reaching long-term growth in their retirement portfolios.
The examples and case studies provided in this article are for illustrative purposes only and do not constitute investment advice, a guarantee of returns, or an endorsement of any specific investment strategy.
6 Common Alternative Investments
- Private Equity and Private Placements
Investing in private equity for companies and startups can provide a unique opportunity for potentially substantial returns. Many high-net-worth individuals allocate a portion of their portfolios to private equity, taking advantage of early-stage investments in businesses poised for growth. The typical timeline from the initial investment is about seven to ten years.
Example: An SDIRA investor allocates $200,000 into a PE fund specializing in biotech startups. The fund holds investments for 8 years, eventually selling a high-growth company to a larger pharmaceutical firm, generating a 4x return.
Private placements—such as pre-IPO stock, venture capital funds, and direct investments in companies—allow SDIRA holders to access high-value opportunities beyond publicly traded markets. The average duration of these holdings can run from three to five years.
Example: An SDIRA investor participates in a private placement real estate fund with a 5-year term. The fund invests in multifamily properties, generating quarterly income distributions and returning principal upon asset liquidation at year 5.
- Real Estate Syndications
Real estate remains one of the most sought-after asset classes for SDIRA investors. Syndications are passive investments, providing a way to invest in large-scale commercial properties, multifamily units, self-storage facilities, and other real estate ventures. By pooling capital with other investors, SDIRA holders can participate in high-value projects without the need for active management.
Funds are typically committed for three to five years or longer in a syndicated investment. This is where an SDIRA can be particularly beneficial—investing retirement funds already intended for long-term growth rather than using liquid cash or an emergency fund you may need access to sooner.
Example: An SDIRA investor allocates $150,000 into a multifamily real estate syndication with a 5-year hold period. The investment provides quarterly distributions of 8% annualized returns plus a projected 2x equity multiple at the end of year 5 when the property is refinanced or sold. The investor earns steady income and a final lump-sum profit, all tax-deferred within their SDIRA.
- Private Lending
Private lending through an SDIRA offers investors a steady, tax-advantaged income stream while maintaining asset-backed security. Unlike traditional lending institutions, private lenders—such as Mid Atlantic Secured Income Fund—work directly with borrowers to provide flexible financing solutions. These loans are typically secured by real estate, making them an attractive low-volatility investment option within an SDIRA portfolio.Private lending transactions are not encumbered by the restrictions and requirements conventional lenders impose. The SDIRA owner sets the interest rates and durations of loans, which can be short or long-term. Income is earned on the interest rates, making long-term transactions a favored strategy to maximize capital growth within the tax-sheltered umbrella of retirement plans.
Example: A self-directed IRA investor lends $100,000 to a real estate fix-and-flip investor at 10% annual interest, secured by the property. The borrower completes the renovation and repays the loan in 12 months, earning the investor $10,000 in tax-advantaged interest income. The investor then reinvests in another short-term loan, creating a compounding, long-term income strategy within their SDIRA.
- Impact Investments and Sustainable Ventures
A growing number of investors seek opportunities that align with their values. Impact investing—focusing on ESG (environmental, social, and governance) initiatives—allows SDIRA holders to support businesses and projects that generate financial returns while positively impacting society. Renewable energy, sustainable agriculture, and affordable housing projects are examples of alternative investments in this category.
Example: An SDIRA investor places $200,000 into a solar energy infrastructure fund that finances commercial solar farms. The fund distributes 7% annual returns from power purchase agreements with corporations and municipalities. Over 10 years, the investor benefits from steady, tax-deferred income while supporting sustainable energy development.
- Precious Metals
Gold, silver, platinum, and palladium have long been favored as hedges against inflation and economic uncertainty. Gold, silver, platinum, and palladium investments for SDIRAs must meet certain fineness and other specifications for precious metal investments in retirement plans. These assets provide long-term appreciation and portfolio diversification.
- Example: An SDIRA investor allocates $50,000 into gold bullion during an economic downturn. Over the next seven years, as inflation rises, gold’s value increases by 30%, allowing the investor to preserve and grow their retirement savings in a stable, tangible asset.
- Hard Assets
Besides real estate and precious metals, SDIRA holders invest in tangible assets oil and gas investments, farmland, and timberland. The goal is to create potential hedges against inflation, stock market volatility, and economic downturns.
Example: An investor uses $75,000 from their SDIRA to buy agricultural land leased to a local organic farm. The land generates annual lease income, capturing appreciation over time. After 8 years, the investor sells the land for $140,000, nearly doubling their initial investment while enjoying steady passive income along the way.
Lesser-Known Tangible Assets that Facilitate Long-Term Growth
- Equipment leasing: Investors can purchase industrial machinery, construction equipment, medical devices, or agricultural machinery and lease them to businesses for a steady income stream.
- Mineral rights and royalties: Investors can own the rights to extract natural resources like oil, gas, or minerals, earning royalty payments when companies extract resources from their land.
- Livestock and agriculture: Some investors purchase cattle, horses, or other livestock as investment assets. Additionally, investing in crops and agribusiness (such as vineyards or organic farms) can generate passive returns.
- Commodities (beyond precious metals): While gold and silver are common, other commodities like platinum, palladium, and industrial metals (copper, nickel, etc.) are permissible in SDIRAs.
- Infrastructure: Investing in toll roads, renewable energy projects (solar or wind farms), or other public-private infrastructure projects can provide stable returns over time.
- Water rights and conservation: Some investors buy water rights, which allow them to lease access to businesses, farmers, or municipalities in need of water sources.
- Shipping containers: Investors can purchase shipping containers and lease them to logistics companies, freight companies, or storage businesses for passive income.
- Storage units: Touted as a recession-resistant investment with consistent demand and cash flow potential. While investors can participate through syndications, direct ownership can also provide consistent income and diversification.
3 Innovative Investment Fund Strategies in Action
The case studies below briefly illustrate how SDIRAs can invest in specialty asset funds across various categories. This strategy creates passive income for the SDIRA that accumulates compound growth over time, creating more tax-sheltered capital to reinvest.
Case Study #1: Real Estate-Backed Assets
An investor allocates $100,000 from their SDIRA into a secured income fund specializing in real estate-backed loans.
- This fund offers a fixed annual return of 8%, with monthly interest distributions.
- Investors benefit from consistent income.
- The principal remains secured by tangible real estate assets.
This strategy allows the investor to achieve steady growth within their retirement portfolio without the responsibilities of direct property management.
Case Study #2: Secured Working Capital Investments
A high-net-worth investor allocates $200,000 from their SDIRA into a secured working capital loan fund that provides short-term financing to small and mid-sized businesses. The fund specializes in lending to established companies with strong revenue streams but temporary cash flow challenges.
- The investor’s capital is used to finance working capital loans secured by business assets, ensuring risk mitigation.
- The loans carry 10-12% annual interest, with monthly interest payments directed back into the investor’s SDIRA.
- Over a 5-year period, the investor earns consistent income and reinvests interest payments to compound returns, growing their retirement savings without market volatility.
This investment allows the SDIRA holder to benefit from asset-backed, short-term lending strategies that generate steady, predictable returns.
Case Study #3: Inventory and Receivable Factoring Funds
An investor seeks a non-traditional, cash-flow-driven opportunity for their SDIRA and allocates $150,000 into an inventory and receivable factoring fund. The fund provides businesses with immediate cash by purchasing outstanding invoices and inventory assets at a discount.
- The investor’s SDIRA earns monthly interest payments from businesses repurchasing their receivables.
- Since factoring transactions are short-term (30-90 days), capital turnover is high, allowing for continuous reinvestment.
- The investor achieves a 9% annual return, generating a reliable income stream while preserving liquidity within the SDIRA.
This investment provides an attractive risk-adjusted return by focusing on businesses with consistent receivables, ensuring repayment through contractual obligations.
Final Thoughts on Using SDIRAs for Long-Term Growth Potential
Self-directed IRAs open the door to a world of investment opportunities beyond traditional stocks and bonds. By investing in alternative assets such as private equity, syndications, secured income funds, and private lending, investors can build a diversified portfolio designed for long-term growth.
Keep in mind that while SDIRAs offer unique advantages, investments require careful due diligence and risk assessment. With the right approach and oversight, an SDIRA can serve as a powerful tool to grow and preserve wealth in a way that aligns with both financial goals and personal investment strategies.
Corey Daharsh, CISP
Corey Daharsh is a seasoned expert in self-directed retirement investing, with over a decade of experience in the financial industry. A Certified IRA Services Professional (CISP), he has been with Advanta IRA since 2016, helping investors navigate the world of self-directed IRAs and alternative investments with confidence. Passionate about financial literacy, Corey breaks down intricate topics into clear, digestible insights, which enables investors to make informed decisions and build long-term financial success. Driven by a commitment to education, Corey takes pride in empowering others to take control of their financial future.