This guest post from Randy is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes.

For the past twenty years, I’ve saved a significant percentage of my income due to career growth, semi-frugal living, and not having any offspring. I’m now 55 years old. Because I’ve made some non-traditional choices, I want to share how I’ve grown my wealth.

Each year, I allocated part of my savings to traditional tax-deferred 401(k) and IRA accounts, using mutual funds (stocks) from Fidelity, Janus, Vanguard, etc. The Roth IRA didn’t exist yet, or I made too much money when they did exist. I also allocated a large part of my savings to after-tax, taxable investments, likewise using the same or similar mutual funds.

Lately I’ve been emphasizing after-tax investments (non-Roth, just plain old taxable investments) even more. Why?

  • If the investments perform well, capital gains taxes paid on after-tax investments will lower my total long-term tax bill compared to traditional IRAs where all dollars when withdrawn are treated as regular income.
  • You can (and I do) own real estate in self-directed IRAs (both traditional and Roth), but owning real estate in an IRA is kind of a pain in the butt. When you do this, the IRS requires that you deal with a third party through a custodial company.
  • Having non-Roth, after-tax investments gives you huge flexibility in life to invest in opportunities with much greater upside potential than mutual funds have. My personal examples include funding my own business startups (plural), making sizable down payments on rental properties when they were devalued three years ago, buying subdivision lots in resort areas with cash, and paying off a mortgage on a nice 3400-square-foot home in twelve years.

Obviously you want to use employer matches in 401(k), IRA, and similar programs to their fullest extent. But beyond that, each person should look critically at how she invests the rest. For many people, maxing out tax-deferred investing is best since they don’t have the willpower to invest the remainder and leave it invested. Others who do have willpower but don’t have entrepreneurial tendencies should do the same.

However, for some people — people like me — who have the willpower and the inclination to spend time and energy researching and managing alternative investments, traditional options tend to be highly overrated. If you can make a better return with alternative investments, then that is what you should do.

Unfortunately, both advertising dollars and news-media hype have convinced most Americans to follow a highly overrated route. Why would this be? Because that’s how the financial industry makes its money. There’s no real conspiracy here; it’s just the financial industry trying to obtain and keep customers. When individuals invest in their own businesses or small real-estate transactions, there’s no money being made by the mutual fund companies, the investment banks, the financial advisors, the financial columnists, the financial television show hosts, and so on.

Here’s another aspect of the issue: When you’re in your twenties and thirties, you don’t even realize that you might want these non-401(k), non-IRA dollars available to give you the flexibility in your forties and fifties to try some other ways of investing. Like most people, I kept those after-tax non-Roth dollars in mutual funds for many years, but when the opportunities came to start businesses, buy rental houses, etc., I was ready, willing, and able.

As a final note, one of my subdivision lots (in a self-directed IRA) did lose a great percentage of its value during 2008 and 2009. My solution was to purchase a second nearby lot with IRA money, then have both lots appraised and convert them both to a Roth IRA account at the lower appraised values. By the way, I have the cash in hand to pay the taxes due upon conversion to Roth because not all of my dollars are locked up in IRAs.

Saving for retirement with traditional methods is a fine thing, but it’s not the only way to get rich slowly. If you’re willing to think outside the financial box, you can find other ways to diversify your investments.

Reminder: This is a story from one of your fellow readers. Please be nice. After more than a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are. Henceforth, unduly nasty comments on readers stories will be removed or edited.

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