With Stocks at All Time Highs, Self-Directed IRAs May Make Sense

The stock market continues to boom. The Dow Jones Industrial Average soared past 22,000 for the first time in history the other day. Meanwhile, Americans with 401(k) balances now have a record high amount of assets in them. While we’re happy that stock prices are doing well and that sentiment is supporting some healthy equity prices, history tells us that times like these are historically dangerous times for equity investors. It may be a good time for investors to move assets out of equities and into some alternative asset classes – and a natural tool to accomplish this is the use of Self-Directed IRAs

Why move into Self-Directed IRAs

The fact is that U.S. stocks, as measured by the broader S&P 500 Index is trading at a historically rich valuation. As of the market close on August 4th, the S&P is selling at 24.7 times trailing earnings. That’s well above the mean and median historical P/E multiples of 15.66 and 14.66 respectively.

Indeed, we’ve only seen valuations this high on a few occasions in stock market history: The 2008-2009 recession (when a corporate earnings collapse caused valuations to soar to 123.73 in May of 2009 before receding), the Internet bubble of 1999, and the biotech craze of the early 90s. Prior to that you have to go all the way back to the 1890s to see a P/E ratio at the current level – and even then it remained there only briefly.

Does this mean we think the current stock market bubble doesn’t have some room to run? Not at all. Nobody knows the future for certain, but there are reasons to believe the current U.S. and global growth rates will continue for some time. And a burgeoning affluent middle and upper class in China, India and elsewhere in Asia is creating a natural market for U.S. stocks that continues to snap them up.

But the U.S. employment isn’t going to get much better. The U.S. unemployment percentage currently at a 16 year low of 4.3 percent, which is essentially at full employment. American retailers and restaurants – the publicly traded ones anyway – are under a lot of pressure, and that’s going to be a drag on broad stock market indexes going forward. And as wages rise in response to the tight labor market, that’s going to squeeze margins of manufacturers and other companies with high labor inputs. So those act as quite a headwind that U.S. stocks are going to have to overcome.

Many of our forward-thinking clients have already taken some money off the table, and have redirected it towards alternative asset classes that have low correlations with U.S. stocks. If you have a stock heavy allocation in a retirement plan, such as a 401(k) or IRA, it may be time to consider opening a self-directed IRA, and diversify into other kinds of assets:

  • Residential real estate
  • Commercial real estate
  • Gold and precious metals
  • Tax liens and certificates
  • Farms and ranches
  • Land banking
  • Timber
  • Oil & gas investments
  • Limited partnerships
  • LLCs
  • Closely-held corporations in industries you know well
  • Private lending
  • Venture capital and private equity
  • Private debt placements

And many other potential opportunities with little or no correlation to what’s happening in U.S. stock indexes.

To get started, visit us at www.americanira.com. American IRA, LLC is a family-owned business that provides the third-party administration and transactional support needed so you can take direct control of your personal retirement assets, and declare independence from Wall Street. Our services enable you to direct your self-directed IRA and other retirement funds into non-conventional asset classes, while still remaining in compliance with laws and IRS regulations governing IRAs, 401(k)s and other types of retirement accounts.

Alternatively, call us today at 866-7500-IRA(472) for a no-obligation consultation. Our offices are located in Asheville and Charlotte, North Carolina, but we gladly work with investors anywhere in the country.

We look forward to serving you.