Why Don't You Want To Self-Direct Your Retirement Fun

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If you want to be an investment maverick with your nest egg, there are places that can help you -- but you should be well aware of the risks before jumping in.

As the credit crisis has made borrowing more difficult and expensive, some firms are using the large, untapped pool of retirement funds to finance everything from real estate and start-up companies to hedge funds, royalty rights and auto loans.

These niche players promise investors a way to boost returns in a down market and take over the reins of their retirement funds with self-directed, unconventional investments. Participants can use retirement cash to gain a stake in all sorts of assets, as well as a host of exotic investment devices.

Guidant Financial Group research indicates that such investments are rapidly gaining popularity. The company, which has over 5,000 clients and oversees $1.1 billion in assets, found that private loans from individual retirement accounts (IRAs) have grown 131% since 2005. Guidant attributes that surge to the current credit environment.
"People are losing their homes and are unable to refinance through traditional mortgages," says CEO and Co-founder David Nilssen. "Self-directed IRA investors ... are taking advantage of the current economy to the benefit of their retirement savings."

The Entrust Group, a Reno, Nev.-based outlet that bills itself as the largest administrator of nontraditional retirement plans, oversees $3 billion in assets, which have more than doubled over the past five years. CEO Hugh Bromma says his 50,000 clients are drawn to the plans because of the control and the array of investment options.

"The history that they've had recently [with traditional investments] is not favorable to their own interest," he adds. "They're more trusting of their own capabilities. They're really saying, 'No one else is doing it better than I can myself.'"

Before the current economic downturn, Entrust clients were posting 16% returns on their holdings -- much of which was related to the real estate boom. Bromma says "that's not holding true now," although he says he can't provide an estimate of current performance. Nonetheless, the firm has not experienced any headwinds on client and asset growth rates, he says.

Such investments may appeal to those who don't want to watch their retirement funds languish in "boring" stocks, bonds and CDs with minimal or negative returns. Still, it's important to consider the risks involved -- many of which have created the current economic downturn -- as well as the tax and legal implications.

Joel Larsen, a financial planner with Navigator Financial Advisors, does not advise on these kind of investments because of their complexity and risk. He refers those clients elsewhere.