“From dairy cows to commercial real estate bridge loans, self-directed IRAs offer entrepreneurial-minded people a chance to invest in something besides stocks, bonds, and mutual funds.”
—Kim D. H. Butler
Diversifying Your IRA with Non-Correlated Assets
When we advise our clients to diversify out of stocks and into non-correlated assets that don’t rise and fall with the stock market, there’s often one-big obstacle: they already have a sizable figure in 401(k)s, IRAs, and other retirement plans that offer limited investment options.
If this scenario describes YOUR situation, you should be aware that you can often use money you already have and multiply it using proven alternative investments that your retirement plan administrator may have never heard of… with a self-directed IRA. However, you should be well-aware of the ins and outs of making such a move.
Many people assume that the only investments allowed in a retirement account are the options their employer offers, such as mutual funds, stocks, bonds, and perhaps a money-market account. In truth, about 1 out of 20 people with IRAs held alternative assets in a self-directed account as of 2015, according to innovative wealth.com. The dollar amount held in such accounts was last estimated by the SEC in 2011 to be around $94 billion, or approximately 2% of IRA funds.
“Maturity is the capacity to endure uncertainty.”
Leaks. Questions about Russia. Political unrest and climate change debates. A media that has become both the attacker and the attacked. Conflicts of interest, ideologies, and personalities. Citizens weary of increasing political drama, terrorist attacks, violence, and bad news.
These are uncertain times. Regardless of how you voted in November 2016, you probably agree that the last several months have been a wild ride. And with rumblings of impeachment (along with warnings of a coup), it seems to be far from over. And we see signs of the uncertain times in economic indicators, including the stock market.
Stocks are up, up, up! Then down with a thud. Wait… no, up again!?
“This might be the best investment you’ve never heard of.”
– Kevin Nichols, private equity fund manager
Are You an Investor Seeking Stock Market Alternatives?
We think that people are tired of the word “investment” meaning only the stock market. In broker-dealer circles, even “alternative” investments often refers to products within the mutual fund world, such as REITs (Real Estate Investment Trusts that are securities, not property) or mutual funds that invest in precious metals.
By contrast, life insurance is an entirely different beast, based on actuarial math rather than the rising and falling of stocks, funds, and indexes (though NOT classified as an “investment.”) However, there is a life-insurance based investment that has been gaining popularity with many corporate and sophisticated investors: life settlements.
You can manage forests for climate and water with timber and timber products as complementary goods if you shift the economic drivers. Conservation easements realign those economic forces for landowners, and the more you protect the public trust, the more money you as a landowner get paid.
—Laurie Wayburn, co-founder, co-CEO and President, Pacific Forest Trust
What does much of the farmland in the U.S. have in common with over half the country’s timberland and many of the vineyards and wineries in California?
It is owned by family businesses, and there will be an enormous generational or ownership change –mostly likely within a decade.
By and large, most of the capital in these businesses is tied up in the land. And for many of these families, their identity and family culture is immersed in this property as well. Unlike financial assets, though, land is not easy to divide. And this illiquid asset does not generate a big cash flow, so it does not allow a family to carry out the generational transfer techniques most businesses use.
Fortunately, though, there are ways.
“Impulsive decisions are soon regretted, so take your time with financial decisions.”
– Kate Phillips, Total Wealth Coaching
It’s the problem everyone wants to have: how should you spend a large additional sum of money? Expected or unexpected, the result of an inheritance, business deal, or the sale of a company, home, or other property, there are some things you should know.
First, be intentional. Even if the windfall is more money than you ever thought you would have, if not managed intentionally and with care, you risk looking back one day (perhaps sooner than you think) with regret. Just google “lottery winners who lost it all” for examples of what not to do. (Better yet, read the eleven ideas below for putting the money to good use.)
Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two than they are now. And if they become more afraid you make money; if they become less afraid, you lose money, but the gold itself doesn’t produce anything.
Sage Advice on Gold
As celebrated investor Warren Buffett suggests, gold is sometimes used as the “crisis commodity.” When people are anxious or frightened and times get tough–either financially (as in the wake of the 2008 crash) or geopolitically (as perhaps now, following U.S. strikes against Syria and threats from North Korea), they often turn toward gold in the hopes it will provide a safety net.
As such, it is no surprise that clients often ask me if they should own gold. My reaction is to ask what purpose they want it to serve. A purchase of gold, after all, is not an investment; it is speculation. And it does not align with the principles of prosperity economics. And yet, it still has its allure.
“Put simply, BOLI is attractive to the banks because it can produce better returns that the banks couldn’t otherwise achieve.”
– Fool.com, “Bank Owned Life Insurance: A Little Known Way Banks Make Money”
In Part 1 of “The Banker’s Bunker,” we introduced the phenomenon of BOLI, or bank-owned life insurance that has become a significant Tier 1 asset for many U.S. banks. We looked at how these plans work, the favorable returns and tax treatment compared to other cash equivalents, and how life insurance fits into Tier 1 assets held by banks.
Today, we’ll examine the impressive growth of bank-owned life insurance, the pros and cons of BOLI, and answers to common questions. Then we’ll look at what we can learn from the BOLI trend can be applied to our personal economies.