As a self directed IRA investor since 2004, I feel lucky to have moved much of my retirement savings from the stock market to real estate. About half of my self directed IRA is in real estate holdings, while the other half is being lent out to a real estate developer. My self directed IRA is presently 78% of my retirement portfolio, and as I read the financial news, and the economic news, I am toying with the idea of making it 100%. The June 2011 edition of Smart Money Magazine has two articles that push me in that direction. On page 18, the magazine makes note of the fact that while discount stock brokers have reduced per transaction fees, the mutual fund managers have not reduced their fees in the last five years. The average fund cost in this article is $144.00 per $10,000 invested, or $1,440 per $100,000.00 invested. This is only the administrative fee. Many have other fees, as well. Our yearly adminstrative fee for the same $100,000.00 is $440.00. That is a difference of 1% a year, or 10% over ten years, not compounded. Do the math. That is $10,000.00 more in your account if you only do as well as the fund manager. My real estate and lending portfolio is trouncing my mutual fund portfolio every year. It is more work to find and manage real estate, but for me, the sweat equity will ensure a better retirement someday.
The second article is equally or more compelling. On page 32, Jack Hough, writes about sweeping government budget reforms. Basically, we are so deep in a deficit hole that there will need to be major increases in taxes and spending cuts at the federal and state level in order to get our budget in order. Without out significant changes, we will be headed for an economic disaster on par with Greece, Japan, and Ireland. As the interest on the deficit continues to rise, the turnaround becomes more difficult. The next administration will be forced to make massive cuts that most of us are experiencing at the state level. Yet somehow, the stock market has risen from its 2009 lows. Is the market rationale? With high unemployment, skyrocketing debt, and a bad real estate market, I don’t see how the stock market is going to continue in the same direction.
The sector I feel most comfortable with right now is real estate. Individuals that lost their homes need to rent, young people need to rent until they can find work, and since the real estate market is depressed, the pricing is good. Maybe that is why we don’t have a single client telling us they made the wrong move with real estate. While the stock market seems irrational, real estate makes sense.
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