Risk lovers, rejoice. Choosing investments for your Roth IRA is a great chance to put your daredevil tendencies to good use. Since the whole point of Roth IRA funds is to leave them in the account until you retire, you might want to put at least some of the money into long-term, high-risk investments. Even if your holdings tank, you'll have time to either reinvest the funds or allow the initial investments to recover. Visualize reaping the tax-free rewards of your bold inclinations as you withdraw your bloated earnings at retirement -- or leave the burgeoning assets to your kids. Among high-risk choices are oil and gas royalty trusts, precious metals funds and timberland real estate investment trusts — REITs.
Oil and Gas Royalty Trusts
By law, a royalty trust must pay nearly all its profits -- 90 percent -- to shareholders, which makes it a high-yield investment choice. Of course, the risk is high as well. Trust profits are tied to the price of oil or gas, both of which can swing quite wildly. In addition, royalty trust dividends are not subject to corporate tax. Holding this type of investment in a Roth can mean higher-than-usual dividends with no tax liability at retirement.
A timberland or forest-product REIT earns profits by harvesting trees. As a long-term investment, timber can work well. Because trees take years to grow, timber product profits are not produced overnight, but can offer high returns over time. According to Kiplinger, over the past 10 years, timber investments have returned 6.9 percent annualized. Of course, a wildfire or other natural disaster can devastate timberland holdings.
Precious Metals Funds
Precious metals can range from gold and silver to platinum, palladium and more. Investors often resort to precious metals when stock returns are down and currency is in decline. Though volatile, metals are often considered a good hedge against inflation. Precious metals funds invest not only in the metal itself but in companies that mine or process a given metal. Precious metals funds have been known to return as much as 71.8 percent in a one-year period.
An alternative-asset IRA, also known as a self-directed IRA, is a special kind of IRA that is subject to a separate set of IRS regulations and is deal for adventuresome investors who want to expand beyond the usual Roth IRA stocks, bonds and mutual funds. Self-directed IRAs are administered by a limited number of companies, so shop around for the lowest fees and simplest online interface. With an alternative-asset IRA, you can, for example, invest in real estate or private business interests. You cannot, however, invest in real estate that you use yourself. To avoid running afoul of IRS rules, consult an alternative-asset IRA specialist before funding an account and choosing your investments.
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