As we write this, the Dow has just hit an all-time high, beating the 21,000 mark for the first time. The S&P 500 Index beat it’s all-time intraday high of 2,193.81, to close at 2,198.18. The Russell 2000 and the S&P Mid Cap 400, representing U.S. small-cap and mid-cap publicly traded companies, have also hit record highs – all at the same time. This has been great for backward-looking returns of IRAs, but rings a warning bell: Now may be a good time take some money out of the stock market, lock in some gains, and direct some investment into longer-term alternative investments via a Self-Directed IRA.
What’s more, it’s also time to rethink some assumptions about a Self-Directed IRA and diversification. If so many different stock indexes, such as the small-cap Russell 2000, are hitting highs at the same time as the S&P 500 and even the Dow Jones Industrial Average, then these different indexes are moving together. There may be less diversification benefit to expanding one’s portfolio from large cap S&P 500 stocks into small-caps than there used to be.
Bond’s aren’t much good anymore, either, as a diversifier. U.S. Treasuries are down, somewhat, but still kicking off yields that we would have dismissed in money markets just a few years ago, the 10-year note yielding just 2,33 percent. But a recent report from BlackRock finds that you can’t meaningfully diversify away from an all-stock portfolio with bonds, anymore. The historic negative correlation between stock and bond markets have all but disappeared, removing most diversification benefit from bonds. And when you combine bonds with a stock-heavy portfolio with too high a correlation, you lose the theoretical diversification benefit predicted by Modern Portfolio Theory. Instead, you’re just left with crummy yields in a rising interest rate environment.
That’s deadly for bond returns.
The Solution: Self-Directed IRAs
Many smart investors are pulling retirement funds out of equities, now hitting all-time highs, and instead directing efforts at alternative asset classes, which they can hold via Self-Directed IRAs.
Our clients – many of whom have survived several market cycles during their adult lives - are using Self-Directed IRAs to diversify into a variety of alternative asset classes:
- Rental real estate
- Property flipping
- Gold and precious metals
- Private mortgages/private lending
- Hard money lending
- Venture capital
- Private equity placements
- Private debt placements
- Surety bonds
- Equipment leasing
- Farms and ranches
- Closely-held corporations
- Partnerships and master limited partnerships
- Tax liens and tax certificates
….And much more.
This isn’t to say that we are anticipating a market crash tomorrow – just that historically, new highs have generally been opportune times to move money out of the stock market and into one or more of these alternative asset classes.
How to get started with Self-Directed IRAs
A Self-Directed IRA makes it easy: All you have to do is open an account with us, transfer assets from existing retirement accounts to a new Self-Directed IRA account with American IRA, LLC via a direct trustee-to-trustee transfer, and tell us where you want to invest your assets. We will execute and record the transaction on your behalf, in accordance with all applicable laws that govern individual retirement arrangements (IRAs).
American IRA, LLC is one of America’s leading authorities on providing support for investors who own Self-Directed IRAs. Our offices are in Charlotte and Asheville, North Carolina, but we work with clients from anywhere in the United States. For more information, contact us via the web at www.americanira.com, or call 866-7500-IRA(472).
We look forward to working with you.