As of this writing, stocks – as measured by the Dow Jones Industrial Average have just hit another record high. But there are a couple of reasons for investors using a Self-Directed IRA to be cautious about going overboard with equities right now:

First, we’ve seen a reversal in fund flows into equities of late. According to information from Lipper, October saw inflows into stock mutual funds of $11.5 billion, while ETFs specializing in equities posted net inflows of 8.4 billion.

This means that investors as a group have been buying more money’s worth of stocks than they’ve been selling to buy other asset classes. October saw taxable bond outflows of $9 billion from mutual funds and $25.5 billion from ETFs, as investors sold large amounts of bonds to buy stocks. This was the aggregate result of the individual decisions of millions of investors.

That was from the 18^th of November report from Lipperusfundflows.com.

But for the week ending November 18^th, we’ve seen those flows reverse: All equity funds are reporting nearly $1.9 billion. 1.028 billion of that was pulled out U.S. stock funds and the remainder from foreign funds. Meanwhile, corporate bond funds were attracting $3.422 billion in new money, and money markets reported net inflows of $4.6 billion.

The change in investor sentiment appears more pronounced in Europe, where observers are reporting that fund flows into European mutual funds are only about a sixth of what they were just a month ago. Lipper analysts are calling it a “massive slowdown” of investment flow into Europe.

European funds reported net inflows for mixed asset products and bonds. But equity funds, alternative funds and commodity funds were hemorrhaging money.

We also note that the price of gas is extremely low, compared to prices at this time last year – this despite widespread chaos in the middle east as ISIS overruns huge swathes of land in Syria and Iraq.

When there is blood flowing in the streets in the Gulf area and the oil producing areas of Northern Iraq, and oil prices are low, it’s usually because of week demand due to a slowing economy.

And indeed, we’re beginning to see a slowdown in global economic output. Japan, for example, seems to have slipped into recession. And China has been trying to engineer a soft landing after a decade of massive expansion and economic growth.

All of the above puts substantial downward pressure on American stock prices – while boosting demand for somewhat safer asset classes: Hence the big move away from equities and towards money markets and investment grade bonds.

This is a great time for us to reiterate our message to IRA owners: Diversify.

Stocks have had a great run – and they may well have some more headroom to them.

But don’t put yourself in the position of relying on them, either, to the exclusion of all other asset classes. That’s the beauty of using a Self-Directed IRA: The ability to leverage the powerful advantages of tax-deferred or tax-free growth (in the case of Roth IRAs and designated Roth accounts within 401(k) plans and take the some or all of the stock-market related risk away by investing in assets that have little or no correlation with the stock market.

Using a Self-Directed IRA, SEP IRA, SIMPLE IRA, Roth IRA, 401(k) or even Coverdell Education Savings plan lets you leverage your expertise with tax deferral or tax-free growth – whatever that expertise may be:

• Real estate
• Private lending
• Private equity
• Venture capital
• Partnerships and joint ventures
• Limited partnerships
• Closely held companies, including limited liability companies
• Farms and ranches
• Horse breeding and training
• Tax liens and certificates

…And much more.

As long as you stay away from life insurance, jewelry, art, collectibles, alcoholic beverages and certain forms of precious metals in your IRA and other retirement accounts, there is nearly no limit to what you can do with a Self-Directed IRA – and still be fully and aggressively invested, if you so choose!

Want to know more? Give us a call at 866-7500-IRA(472), or visit us online at www.americanira.com. We look forward to working with you.

 

 

 

Image by: presentermedia.com