Many Americans have been concerned after seeing their 401(k) and traditional IRA account balances drop drastically during the recession that was caused by the pandemic. However, there were also individuals with retirement funds that were not affected during this time. How is this the case? Well, those who had their money in a self directed IRA were able to keep their savings sheltered during the recession.

With all that in mind, let’s dive into a quick summary of the question we will be answering today:

How does a self directed IRA recession-proof your retirement savings? A retirement account that is self directed allows for alternative asset class investments that are historically safe from economic downturns and stock market crashes, as well as provides an individual with more control over their nest egg. Together, these elements create a recession-proof environment for retirement funds. 

3 Ways a Self Directed IRA Keeps Your Retirement Savings Recession-Proof

It’s essential to protect your life savings now more than ever after seeing just how quickly and unexpectedly the economy can crash. Even if the pandemic didn’t exist, if your funds are in a traditional IRA or 401(k), they are at the mercy of various elements such as economic problems due to nationwide or worldwide issues, low consumer confidence, stock market crashes, and the like.

With that said, let’s go over how a self directed IRA can recession-proof your retirement funds:

1. An SDIRA Gives You Control Over Your Retirement Account

The first step in protecting your nest egg from a recession is to have control over your retirement account; investing with a self directed IRA gives you that control. It allows you to put your money into investments that you feel are the most lucrative and recession-proof, and enables you to take the steps that you feel are best for your financial goals.

When you have a traditional IRA or 401(k) retirement account, you’re not in the driver’s seat. That in itself seems like a big mistake. It just doesn’t make sense for someone else to have control over your life’s savings, making the decisions for you, especially when it’s someone that doesn’t even know you.

Although they might be a good employee, do they really have your best interests at hand? Maybe they do, but maybe they have the company’s financial goals on the top of their list. Do you want to take that risk when so much is at stake? Having control of your retirement savings allows you to make the necessary decisions to adjust for an unstable, unpredictable, and volatile economy.

Take a moment to check out this video that details what a self directed IRA is, how it’s used, and why it’s the best way to build retirement wealth:


2. Safeguards Your Retirement Funds by Allowing Diversification with Alternative Asset Classes

One of the most popular reasons for getting set up with a self directed IRA is the fact that you can invest in alternative asset classes. This allows you to diversify your portfolio, which helps recession-proof your retirement savings.

Even if you’re not interested in diversifying because you only want to invest in one type of asset class that you feel is recession-resistant, like rental real estate, that is still a smart move and a superior retirement strategy when compared to investing in the unstable assets that a 401(k) is restricted to.

What SDIRA Investment Types are Allowable?

A self directed IRA provides the option to invest in assets that are proven to be recession-proof. Below you will find a list of allowable SDIRA investments; there are more to choose from, but this will at least give you a good idea of a few asset classes that are out there.

Rental Real EstateCryptocurrenciesTax Liens
Oil & GasPrecious MetalsRace Horses
CoffeePromissory NotesRaw Land
LLC MembershipStart-Up BusinessesAnd More

If you’re a crypto investor and would like to trade within a retirement account, you will be interested in reading this article that I put together on the topic, which also covers how you can trade without it being a taxable event – Top 5 Reasons Why You Should Add Crypto to Your Retirement Portfolio with a Self-Directed IRA.

You should also be aware that there are a few SDIRA investment types that are not allowable. This includes asset classes that are considered collectibles, life insurance policies, and S-Corporations.

Most Lucrative & Recession-Proof SDIRA Asset Class

There is one investment type that is well known for being the most recession-resistant, as well as extremely lucrative, and that’s rental real estate. While common 401(k) and traditional IRA asset classes, such as stocks, are at risk of following the ups and downs of the economy, real estate remains a secure, stable retirement investment vehicle that holds up to even the toughest recessions.

Rental real estate is not tied to unstable paper assets such as stocks, which means you’re not at risk of losing thousands of dollars in the blink of an eye just because the economy is having a bad day.

So, a rental property that sits within a self directed individual retirement account is safe and sound, not swayed by the economy, and is able to keep generating cash flow from your tenant, month after month, like clockwork.

The funds generated by the rental property would go directly into your SDIRA, and if a recession were to occur, your money would not be impacted. Doesn’t that all sound much better than losing sleep not knowing how much money you will have left in your retirement account when you wake up each morning?

3. Protects Your Nest Egg When Wall Street Crashes During Economic Downturns

A lot of people just don’t realize how unprotected their retirement funds really are in a traditional retirement account. This may be because we were all taught from a young age to get a job, signup for a retirement account such as a 401(k), and start funneling money into it to save for the future – that’s America’s retirement strategy; no questions asked!

The people are not thoroughly educated on the fact that their life savings is connected to, and reliant upon the volatile stock market. They may have a surface understanding of it, but have not dug deeper into the hard facts, and the harsh reality of what can happen when the market crashes. They find out about it after it’s too late, after they have lost thousands of dollars when a recession arrives, and the stocks take a dive.

Look at what happened during the coronavirus pandemic; stocks plummeted to an all-time low, and along with that, so did the life savings that were tucked away in so many traditional retirement accounts. Well, what about the people who were set to retire that same year? Now they may have to continue working because they lost so much money.

Experts are strongly suggesting a major stock market crash is on its way, so now is the time to move away from stock-based retirement accounts and look into investing in historically safe assets. You can read more on this topic by heading over to our article – Why the 401(k) is a Lousy Way to Build Wealth.

How to Switch from a Traditional to a Self Directed IRA

If you’re now feeling uncomfortable about having your family funds tied to the volatile stock market, I don’t blame you. After all, a self directed IRA can recession-proof your retirement savings, so it makes more sense to go down that path instead.

For those who would like to switch to an SDIRA, I recommend reading the following article – Can You Use a Self Directed IRA to Purchase Real Estate? It goes over the steps on how to switch from your traditional retirement account to a self directed one. It will also be helpful for you to dive into this other article that discusses the rules and regulations of investing with an SDIRA.

Shelter Your Retirement Funds from Future Recessions with an SDIRA!

If you get anything out of this article, I hope it’s that you realize that your life savings is at risk if it’s sitting in a 401(k) or traditional retirement account, and that you and your family are at risk of losing those funds if (when) the next recession hits. It doesn’t have to be this way – as mentioned, there are alternative investments that are historically safe and recession-proof.

A self directed IRA is similar to a 401(k), with the main difference being that you’re in the driver’s seat as to what you invest your hard-earned money in. Take control of your funds and start saving for retirement the right way with an SDIRA.

Grab a cup of coffee and watch this exceptional video that is packed with information on recession-proofing your investments: