When most people think of retirement they think of long walks on the beach, golf, sitting around the house enjoying their grandchildren, and other happy thoughts. If you look at how most investment and annuity companies advertise, that’s exactly the dream they’re pushing. That advertising and marketing strategy has worked very well at getting Americans to fork over their hard-earned money to money managers, brokers and other financial professionals for them to underperform the Index on their behalf.
The thing is, it used to be easier. For example, the long term average dividend for U.S. equities has been 4.4 percent, going back to the 1920s. Stocks are paying a dividend of less than half that figure now, at 1.9 percent for the S&P 500.
Meanwhile, investors are currently paying 20 times earnings and up for exposure to the stock market. The long-term average is closer to 15 times earnings. Your parents and grandparents were getting a much greater return on investment than you are likely to get going into retirement.
In the 1970s, you could easily buy bonds that generated 10 to 12 percent interest, without breaking a sweat. Money markets even generated some solid numbers north of 5 percent and up. Inflation was a factor then, but inflation moderated, finally, going into the 80s, when investors simultaneously enjoyed the beginning of one of the biggest bull markets in history. But that happened because dividends could be profitably reinvested and multiples were simultaneously expanding from the tough times of the 1970s.
Things are different now: AAA bonds are paying dividends in the upper 4 percent range – and you can’t even count on the U.S. Treasury to be AAA rated anymore. Money market and CD rates are barely a blip. Going forward, conventional financial assets have a very strong headwind ahead of them.
Back then, it was easy to look good. There was plenty of return to go around and everyone was comfortable. Not anymore. Think of it: When stocks had dividends of 4.4 percent and up, and bonds earned 8 percent, it was no big deal to pay 1 percent to a mutual fund manager. Pay that now, and that’s over half your dividend return and a quarter of your interest income. That hurts.
That’s why we are believers in the Self-Directed IRA: It allows investors to diversify beyond conventional assets like stocks, bonds, CDs and money markets, and allows for access to potentially more lucrative asset classes. For example, leveraged real estate, precious metals, farming, mineral rights, oil and gas investments, limited partnerships, joint ventures – the sky’s the limit.
Yes, there are always risks associated with investing, and if you want to minimize inflation risk you must take on some uncertainty somewhere in the portfolio. But think of it: Any stock can go to zero. But energy won’t be going to zero. Land won’t be going to zero. A house’s value will never be zero as long as there is someone who is able to live in it. In fact, most of our clients who buy single family homes and rent them out, see a rate of return significantly higher than 4.4%. And the availability of leverage not normally available in most IRA accounts funded with conventional stocks and bonds has the effect of potentially significantly improving your cash on cash return within your retirement savings.
We’re here to spread the good news – you no longer have to feel bound to Wall Street. You can declare independence from the big investment banks and take control of your assets yourself.
To learn more, visit us online at www.AmericanIRA.com, where you can download one or more of our exclusive guides to self-directed retirement investing.
Don’t let Wall Street get away with the same old same old. Seize the reins yourself.