Real Estate IRAs Provide Real Diversification Against Struggling Stock Market

It has been a rough few months for most investors. But, owners of Real Estate IRAs have been doing pretty well.

The last week of March the Dow Jones Industrial Average plummeted 1400 points to reach a low for the year. The Dow fell 5.7 points and the S&P 500 fell 5.9 percent – the worst week for stocks in two years. The Nasdaq fell 6.5 percent that week. The S&P 500 is now 0.68 percent underwater for the year to date. The Dow is now 11.2 percent off its high.

Sure, that is not the end of the world – it is also up by more than 12 percent over the previous 12 months. Stocks have been exceptionally volatile lately. The U.S. stock market is also trading at over 27 times earnings which have been looking favorable. There is ample good news already figured into the stock market. One big earnings miss, or a disappointing jobs report could bring the whole thing down by a significant amount.

“The market has been priced for perfection … and that leaves the market vulnerable to surprises. In this case, it’s trade,” according to Baird analyst Bruce Bittles.

Stock Vulnerability Is Global

U.S. markets were not the only losers. Stocks lost money around the world – this time on fears of a potential trade war between the U.S. and China, sparked by talk of tariffs in Washington. China helped send shares plummeting by slapping retaliatory tariffs on more than 148 U.S. products, including steel pipes, pork, almonds and California wine.

In the above markets, diversifying into international stocks did not shelter investors from the pain.

Real Estate IRAs Outperforming

The investors who chose to diversify into Real Estate IRAs experienced a better outcome:  U.S. house prices jumped 7.3 percent in January compared to the same times last year, according to data from the Federal Housing Finance Agency. Prices were up more than 10 percent in the Mountain region. Prices had jumped 0.8 percent from December to January – the biggest monthly increase since February of 2017.

Real estate has been delivering a solid annual return – on an unleveraged basis – while still showing much less downside volatility. Over the past 12 months, all regions in the U.S. were up, with the weakest regional market – the West South-Central region (Oklahoma, Arkansas, Texas and Louisiana) increasing by 5.1 percent. Home prices in Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and New Mexico saw double-digit increases.

The Potential Benefits of Leverage in Real Estate IRAs

Real estate investors are doing much better than even those numbers suggest. First, real estate is commonly leveraged. So, an investor in Colorado with a typical real estate portfolio gain of 10 percent for the gain but holding just 50 percent equity is getting close to 20 percent, minus costs of carry.

Furthermore, he or she is collecting rental income the whole time. In this case, the landlord can collect two rents for the price of one, thanks to leverage.

Leverage increases risks, in a down market, it can make things very dicey for the borrower. At the present, however, most real estate investors have been doing much better than stock market investors, with less stress (assuming good tenants)!

The last few months have been excellent for Real Estate IRA investors. The strategy has been working as intended: Real Estate IRAs provide meaningful diversification to portfolios otherwise heavy with stocks. They are delivering solid price appreciation. They are generating current rental income, so investors get paid to wait. And the income they generate has been steadily increasing. Rents have been rising in nearly 9 out of 10 cities, according to data from RentCafe, helping protect income-oriented investors against inflation.

Own Real Estate IRAs

We suggest nearly every American with significant retirement savings or investable assets consider including real estate, including Real Estate IRAs, in their portfolio.

Holding real estate in a Real Estate IRA, Solo 401(K) or SEP IRA can help shelter increasing income from taxes and generate free cash flow on a tax advantaged basis.

Investing in a Real Estate IRA is very easy: Call American IRA, LLC today at 866-7500-IRA (472). You may also download our exclusive guide to Real Estate IRA investing here.

We look forward to hearing from you.

Baby Boomer, Gen X Retirement Saving Inadequate, Study Says

When it comes to retirement saving, the Baby Boomer generation is in trouble.

Despite many of them now entering retirement, the majority of those born between 1946 and 1964 report having less than $250,000 in retirement assets. Only about 1 in 3 Boomers has that much saved up – leading to a retirement income shortfall of between $3,864 and $12,072, according to research from the Insured Retirement Institute.

And things are not looking too great for Gen Xers, either. According to the Insured Retirement Institute’s (IRI) fourth biennial report on Generation X, about 4 in 10 members of this generational cohort do not have money saved for their retirement. Despite an overall improvement in the economy, this represents a deterioration of about 5 percentage points from two years ago.

Of those with retirement savings, about 6 in 10 have saved less than $250,000. On the other hand, the percentage of those who have saved at least $250,000 or more has nearly doubled over the same time frame, rising from 12 percent in early 2016 to 23 percent in 2018.

According to the IRI, about 60 percent of Generation X respondents report being generally confident they will have enough money saved for retirement. Their top three economic concerns are changes in Social Security (66 percent), higher than expected health care expenses (64 percent) in retirement and running out of money (59 percent).

Ultimately, people across the generations need to get serious about putting money away.

Use “Catch-Up Contribution Limits”

The Baby Boomers and the oldest of the Generation Xers can both take advantage of “catch-up contribution” limits, available to those ages 50 and older. Congress anticipated the need for older Americans to sock more money away as they enter their peak earning years and their children have reached adulthood.

For Self-Directed IRAs, individuals age 50 and older can put an additional $1,000 away each year in combined Roth IRA and Traditional IRA contributions – over and above the normal $6,500 annual limit. Some limitations apply for those at higher income levels.

Older Self-Directed 401(k) beneficiaries can also increase salary deferral contributions. As of 2018, those ages 50 and older can contribute an additional $6,000 per year to employer-sponsored Self-Directed 401(k) plans, on top of the generally applicable $18,500 contributions, for a total potential employee contribution of $24,500 per year.

Similar provisions also apply to 403(b) plans, the federal Thrift Savings Plan and many Section 457 deferred compensation plans for public employees. They also apply to Self-Directed 401(k)s and small business Self-Directed 401(k)s.

Those turning 50 and older this year should consider taking full advantage of these more generous tax-advantaged compensation limits.

Working longer

Many Americans will have little choice but to stay in the work force longer and put off retirement. This means more years of earning an income, and more years of potential retirement contributions and compounding within retirement accounts. It also means higher monthly Social Security benefits, if you can put off collecting Social Security until you reach full retirement age.

Staying in the work force also means you do not have to stretch your retirement income over as many years. With today’s advances in health care and nutrition, it has grown commonplace for Americans to live into their late 80s and 90s. Taking income out of your portfolio for 10 years rather than 20 years can make a big difference in the sustainability of your retirement income.

For more information on getting started with Self-Directed IRA investing, call American IRA today at 866-7500-IRA (472).