Amid Stock Market Downturn, Consider Self-Directed IRAs
Many investors are dealing with yet another stock market downturn, which is in reaction to current events such as global concerns about the Coronavirus and U.S. politics during an election year. These and other factors—from geopolitics to macroeconomics, trade issues to plant closings to a company’s profitability and earnings—can influence a stock market downturn.
Stocks by nature are volatile, which is why many investors look to alternative assets to build their retirement savings and avoid stock market downturns that are often hard to predict. That means looking at self-directed IRAs, which allow individuals to include a variety of nontraditional investments and build a more diverse retirement portfolio based on assets they already know and understand.
Look at it this way: unless they work there, many people are not experts on what a Blue Chip or Fortune 500 company produces or sells, and they certainly cannot control what those companies do in the marketplace. However, many people know a lot about investing in real estate, precious metals, or private equity. Others like the idea of including secured or unsecured loans in their retirement plan, with terms they determine with the borrower. All of these investment types can be included in a self-directed IRA, where investors build retirement wealth with alternative assets—and have better control over their earnings.
A self-directed IRA has the same tax advantages as regular retirement plans with the added bonus of being a great hedge against stock market volatility. For those who are comfortable making their own investment decisions and conducting their due diligence, self-direction is a powerful retirement strategy.
Typical retirement plans offered by brokerage houses or banks limit investors to publicly traded stocks, bonds, certificates of deposit, and mutual or exchange-traded funds. But a self-directed IRA allows you to hold the alternative investments noted above plus notes, private placements, limited partnerships, tax lien certificates and more.
Our whitepaper library has a lot of great information about self-directed IRAs and our helpful team is here to answer your questions about self-direction. To find out more about self-direction, you may call us at 888.857.8058 or send an email to NewAccounts@NextGenerationTrust.com. Alternatively, you can sign up for a complimentary educational session with one of our knowledgeable representatives.
GE’s Fall off the Stock Market Cliff – a Lesson in the Value of Self-Direction
Over the past year, the value of General Electric Co.’s stock experienced a $140 billion drop. To give you an idea of the significance of this epic decline on the stock market, a Wall Street Journal article reported that this “was twice the amount that vanished when Enron Corp. collapsed in 2001 and more than the combined market capitalization erased by the bankruptcies of Lehman Brothers and General Motors during the financial crisis.”
This means that the retirement savings of untold people—employees with company stock and other shareholders—took a nose dive that will be extremely hard to overcome. The author pointed out some human errors that lay underneath the decapitalization and the stock market’s cyclical fluctuations. Lack of a financial plan, savings objectives, asset allocation, and understanding of risk were among them, as were:
- Overweighted portfolios with stock holdings that are not evaluated periodically. The author called this “survivorship bias.” What was once valuable may no longer be delivering the same high level of expected returns.
- Lack of portfolio diversity. Sure, it’s nice to get company stock as part of a benefit package (from the same employer that is paying your salary), but putting all of one’s retirement eggs in one nest, so to speak, lacks diversity in terms of risk and asset allocation.
As the author noted, the fall in GE’s shares caused a lot of financial pain for many stockholders. Investors who have self-directed retirement plans, however, don’t typically teeter on the edge of the stock market cliff. That’s because they include alternative assets in their plans, and avoid falling victim to the ups and downs of the stock market (especially those cataclysmic falls).
If you’re comfortable making your own investment decisions, understand certain alternative assets, and would like to include them in your retirement plan, self-direction can be a great way to diversify your retirement portfolio. If you’re already investing in real estate, precious metals, commodities, equity funding or other nontraditional investments, consider including them in a self-directed retirement plan. Want to know more? Read up on self-direction as a retirement wealth-building strategy in our white paper library and on our website… or contact our helpful team for answers to your questions at 1-888-857-8058 or Info@NextGenerationTrust.com.
Stock Market Ups and Downs Have Your Head Spinning? Try Self-Directed Investments Instead
February 2018 got off to a wild start for the stock market, with the Dow Jones Industrial Average plummeting almost 1600 points on February 5th. In fact, it was the biggest intraday point drop in history despite there being no economic news to signal the downturn. It staggered in the following days, making many traders and investors nervous considering the bull market the US has been experiencing. The S&P 500 index also dropped 4 percent that day.
The stock market had been surging before this event, with the Dow Jones Industrial Average crossing the 25,000-point threshold for the first time earlier this year. No question—something got the Wall Street bull by the horns this month.
Long-term investors expect volatility and will probably ride it out; after all, it’s the nature of the stock market beast. But many investors prefer to avoid this type of investment environment. Rather than deal with investments vulnerable to market conditions, many savvy investors are controlling their retirement savings through self-directed retirement plans. As we noted in a previous post, interest in alternative investing is growing.
Self-directed investors are putting real estate, private equity, precious metals, notes and many other alternative assets into their self-directed retirement plans. They’re researching the assets, making informed decisions, and including investments they already know and understand—with the same tax advantages of regular IRAs, HSAs, or 401(k)s. Sure, every market has its ups and downs, but self-direction puts the individual investor in the figurative driver’s seat when it comes to saving for retirement. If you’re someone who enjoys making your own investment decisions, has knowledge of certain alternative assets, and is seeking ways to build retirement savings without those wild rides on the stock market, self-direction could be right for you.
Our informative video series walks you through the basics on self-directed retirement plans as well as the steps to complete our starter kits for those opening a new account or sending investment instructions. Want to know more? Get the monthly newsletter or contact the Next Generation team with your questions: Info@NextGenerationTrust.com or 1.888.857.8058.