We knew this day would come. Self-Directed IRAs might be the key.
Stocks have been ugly lately. Interest rate increases at the Federal Reserve and other central banks have sparked concerns about the prospects for future economic growth – and sparked a round of selling that wiped out all the U.S. stock market gains for 2018 and then some early last week.
The selloff started with growth stocks – particularly technology stocks with few or no dividends that are favorites among permabulls and aggressive investors. But the selling spread to other sectors as well.
It was the worst Thanksgiving Week ever for U.S. investors, with all three major U.S. indexes declining by over 3.5 percent. Markets closed in the U.S. for the holiday, but selling continued in Asia, with the Shanghai Composite Index falling 2.5 percent on the Friday after Thanksgiving.
Oil prices have been plummeting, too – down 30 percent in just 7 weeks and hitting just $50 per barrel. A fine thing for travelers and commuters, but it is also a possible indicator of declining orders in anticipation of a slowing global economy as manufacturing and transportation companies pull in their horns.
Gold prices have shown some stability this fall, on the other hand, as investors in stocks and bonds look for some security in more tangible assets.
Real estate prices have also shown some stability, even as equity prices fall around them. Real estate investment trusts (REITs) have held steady this fall, and tend to trade at a significant discount to earnings compared to stocks, while still generating a steady stream of cash – just like the rental properties they own.
Tax liens and certificates – another popular asset class for Self-Directed IRA investors, continue to provide solid returns compared to other debt instruments, with little or no correlation to the broader securities investment market. Many of them are generating returns well in the double-digit range for their holders.
If markets remain this volatile, you can expect capital to flow from risky assets into less risky assets and into alternative market classes that are popular among Self-Directed IRA holders:
- Precious metals
- Rental real estate
- Tax liens and certificates
- Closely-held C corporations, LLCs and private equity
- Private debt placements
- Non-traded REITs
- Commercial property
- Private lending
- Hard money lending
- Hedge funds
When interest rates are rising, and Wall Street is in panic mode, causing stock prices to fall, most traditional brokers do not have very many appetizing options. They can put you in money markets (though they hate it because it does not generate commissions for their brokers like stock and bond purchases do). But money markets and other “risk-free” assets are unlikely even to keep pace with inflation. In the long run, they just leave you behind.
Self-Directed IRAs let you seek out other kinds of assets that still have the potential for generating compelling returns, even when the conventional choices for retirement accounts like stocks and bonds and the mutual funds derived from them aren’t doing so well.
By judiciously adding alternative asset classes to your retirement portfolio using a Self-Directed IRA, you may be able to increase your expected returns, lower your overall risk, or a combination of both.
Meanwhile, American IRA allows you to potentially save thousands of dollars in high expense ratios and AUM fees, thanks to its unique flat-fee, menu-based fee schedule. With American IRA, LLC, you pay only for services you actually use.