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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerA piece in The New York Times look at the increasing willingness of investors to get creative with their IRAs. Consider this amusing example:
BRIAN HARRIS makes a 30 percent annual return on his Roth individual retirement account, but his money is not invested in a soaring biotechnology stock or a hot currency fund.
Instead, Mr. Harris, a music teacher from Tucson, owns about 25 marimbas, xylophones and timpani. Using the money in his retirement account, Mr. Harris buys the instruments for less than $1,000 each. He then rents them to his students for up to $60 a month. The rental income flows straight back into the I.R.A.
Hmm .... While that sounds tempting, there are ample reasons for most investors to avoid these self-directed IRAs. For starters, you're unlikely to be able to achieve much diversification owning traditional real estate or similar assets in an IRA -- If you want real estate exposure, go with a portfolio of REITs. The idea of investing in racehorses through an IRA seems insane. This is supposed to be your retirement money!
The best bet for an IRA remains low-cost index mutual funds. There are plenty of places for more speculative and creative investments -- the IRA isn't one of them. In addition, unless you have a ton of money in your IRA, the transaction costs of alternative investment will probably be prohibitively high.
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Reader Comments (Page 1 of 1)
10-24-2007 @ 10:05AM
Thomas Phelan said...
The recent article "Should you get creative with your IRA?" Posted Oct 21st 2007 8:40AM by Zac Bissonnette reeks of Wall Street bias.
An individual with a Self-Directed IRA with Check Book Control allows one the freedom to invest in conservative instruments, e.g. T-Bills or more risk/reward investments, e.g. real estate, Tax Lien Certificates or discounted Notes.
The key operative word here is "freedom to invest" something Wall Street and its sales agents which include financial writers have denied the American IRA holder for decades. Wall Street's mantra "one size fits all" IRA mentality just doesn't work any longer.
Over 90% of the 45,000,000 IRAs in America are not self-directed, why? Is it any wonder that of the 45,000,000 IRAs in America today collectively worth 4 - 5 trillion dollars Wall Street controls 95% of those funds and intends on keeping it that way.
The irony is when Wall Streets projections of future retirement income for a client fall short Wall Street's agents, Stock Brokers, Financial Planners etc. do not hesitate to suggest that the client employ a Reverse Mortgage (real estate) to supplement the shortages due to Wall Street's inability to deliver.
Why is it every time an IRA holding taxpayer wants to break away from the herd and use a Self-Directed IRA with Check Book Control to buy real estate Wall Street rattles its saber and preaches fear?
There are relatively conservative real estate investments (not a REIT where the Stock Broker earns a 5% commission) that would do well in an IRA, e.g. a Post Office Building that includes the land and where Uncle Sam mails a rent check to the owner's IRA each month.
Thomas Phelan
President IRA Choices
Author: RICH IRA POOR IRA
www.IRAChoices.com