Indications are that it may be time to move some assets out of stocks and into alternative asset classes and real estate – and if the bulk of your investable assets are in retirement accounts, that likely means embracing a Self-Directed IRA.
Here’s why people are embracing a Self-Directed IRA:
The U.S. economy – which has been growing sluggishly at best since 2010, is beginning to slow noticeably. Consumers are struggling under the weight of continued price increases in both health care/health insurance and rent. Meanwhile, wage growth is beginning to narrow as well, falling from 3.6 percent last June, on a year-over-year basis, to 3.4 percent in July to 3.3 percent in August. That’s three straight months of year-over-year declines in wage growth.
Put the two together and that means the American consumer is unlikely to be able to do much to support stocks – even if unemployment remains constant. Which it won’t.
On top of that, the S&P 500, though it’s still pretty close to record highs, has gone essentially nowhere for the last 16 months. On May 21st, 2015, the Index closed at 2,130. It’s at 2,140 as of today. So the stock market has pretty much stalled in place, and seems stubbornly resistant to good news.
Furthermore, while the timeline has been delayed several times by a skittish Federal Reserve Open Market Committee, the U.S. is in a tightening monetary cycle. Overwhelmingly, the concern isn’t if we’ll see a further rise in interest rates, but when.
While U.S. stock investors have been blessedly sheltered from volatility for most of the last year, bear markets can strike fast, and they can strike hard. A 25 to 30 percent stock market loss is not at all out of the question, given the historic magnitude of previous bear market moves. And they nearly always come before the negative data is publicly available, not afterward.
Now’s a great time to pull back on some of that stock market exposure and reallocate it to more stable asset classes with less potential for downside activity. By opening a Self-Directed IRA account with American IRA, LLC, you expand your investment options exponentially compared with conventional investment companies, because with a self-directed account with American IRA, LLC, you aren’t limited to just stocks, bonds, mutual funds and money markets.
Instead, self-direction allows you to invest money in a vastly wider array of asset classes, including but not limited to:
- Direct ownership of real estate
- Commercial property
- Tax liens and certificates
- Private lending
- Private banking
- Gold and precious metals (some restrictions apply)
- Closely held corporations
- Limited liability companies
And much more.
Put together, exposure to these asset classes that are not historically closely correlated with stock market returns can help you diversify your portfolio, potentially reducing your exposure to downside volatility and possibly increasing your returns – especially on a risk-adjusted basis.
U.S. stocks aren’t yielding much: The dividend yield on the U.S. stock market is only about 2.08 percent – a very narrow sliver indeed, and not much downside protection. A dividend yield of 4-5 percent is much more in line with historical norms – but that would require a significant fall in stock prices, if companies kept their cash payments roughly constant.
Meanwhile, with a slowing economy, there’s not much reason to believe that we’ll see a big increase either in earnings or price-to-earnings ratios for the time being. Put that together with a miniscule 2.08 percent dividend yield and the case for diversifying into other asset classes like real estate becomes clear.
Remember that rising rental rate? Owners’ equivalent rent of primary residence rose 0.3 percent in August, and has risen by that same amount every month since April. And Zillow’s latest Rent Index indicates that rents averaged $1,408 nationwide, an increase of 2.2 percent over-the-year.
American IRA, LLC is among America’s leading experts on providing administrative services for owners of a Self-Directed IRA. Though our offices are in Asheville and Charlotte, North Carolina, we are happy to work with Self-Directed IRA investors anywhere in the country.
To learn more about Self-Directed IRAs, visit us at www.americanira.com, or call us today at 866-7500-IRA(472).
We look forward to serving you.