Self-Directed IRA Update: Bill Gross – The Last 40 Years Are Unsustainable

Self-Directed IRA enthusiasts take heart: People who concentrate their investments in traditional bonds and bond mutual funds and other conventional income vehicles have a very steep uphill climb. Now’s the time to diversify part of your portfolio out of the bond markets and into more off-the-beaten-path assets that can still deliver some yield.

Bill Gross, the bond industry giant and currently the manager of the Janus Global Unconstrained Bond Fund, points out that the strong tailwind of secularly declining interest rates, pushing bond prices higher and higher and juicing bond returns, cannot continue, he writes in Barron’s.

This 40-year period of time has been quite remarkable – a gray if not black swan event that cannot be repeated,” writes Gross. “With interest rates near zero and now negative in many developed economies, near double digit annual returns for stocks and 7%+ for bonds approach a 5 or 6 Sigma event… You have a better chance of observing another era like the previous 40-year one on the planet Mars than you do here on good old Earth… The bond market’s 7.5% 40-year historical return is just that – history. In order to duplicate that number, yields would have to drop to -17%! Tickets to Mars, anyone?”

Well, in fairness, there are several markets, notably Japan, where some debt has dropped to negative interest rates. And that number will undoubtedly prove much higher in a decade or two, if we convert those nominal returns to real, inflation-adjusted returns.

Fortunately, Self-Directed IRA investors do not have to attempt to catch that falling knife. There are still areas for patient investors with long time horizons to get yields approaching the historic but unlikely to recur 7 percent gains of the broad investment grade bond market over the last 40 years, without taking on an inordinate amount of risk.

Self-Directed IRA options include any and all of the following:

  • Rental real estates
  • Unrated bonds
  • Private lending and promissory notes
  • Rental real estate
  • Commercial real estate
  • Timberland and minerals
  • Oil and gas, including pipelines
  • Limited partnerships
  • Farmland and ranchland
  • Publicly-traded and non-publicly-traded REITs
  • Business Development Companies
  • Crowdfunding opportunities
  • Land banking
  • Hard money lending
  • Hard mortgage lending
  • Deed trust lending
  • Private placements
  • Peer-to-peer lending
  • Covered calls
  • High yield bonds
  • Emerging market debt
  • Foreign real estate
  • Hotels and motels
  • Tax liens and tax certificates

And much more.

Gross doesn’t project any great shakes for equities, either: An equity premium anywhere near the current and historic 3 percent or so over the expected future returns of a portfolio of bonds would likely return an extremely bumpy 4.5 percent to 5.9 percent over the next ten years.

Meanwhile, the basics apply more than ever: The surest way to compensate for lower yields across the board is to increase your savings and investments now. Increase contributions to Self-Directed IRAs as well as other taxable and tax-advantaged investments. Live below your means, and seek ways to diversify into a variety of more volatile instruments that still retain decent expected return. Own some real estate: No matter what happens, land almost never goes to zero.

American IRA specializes providing third party administration services for owners of Self-Directed IRAs, 401(k)s, SEPs, SIMPLEs, Roths and other tax advantaged accounts. We have clients all over the country who are successfully exploring all of the asset classes listed above, and much more, using their self-directed IRAs and other retirement accounts.

For more information, or to schedule a no-obligation consultation, visit us online at, or call us today at 866-7500-IRA(472). We look forward to working with you.