Excellent Question! - Posted by David Butler America’s Note Network
Posted by David Butler America’s Note Network on January 18, 2000 at 21:21:50:
Albert Einstein said “The power of compounding is truly the eigth wonder of the world”!! (that and a pair of pants in his case, right!) Anyway, that’s the whole premise of IRA investing in the first place. And some of the hassles you describe, will follow any self directed plan, whether you use it to purchase real estate, notes, leases, rare coins, etc. OR securities, mutual funds, options, etc. It is the self directed part that results in the hassles, not the investment vehicle (for the most part).
The real decision should be based on what you are most comfortable with. It’s a no brainer to some extent, with the 10 year bull run we’ve had in the financial markets. You can pop your dough in a basket of mutual funds, and practically go to sleep (IF… you pick the right funds).
Food for thought - as of November 30, 1999, there were 13,492 registered mutual funds. However, of these, only 879 have a 10 year track record, and only 49 of those beat the S & P 500 over 1 year, 3 year, 5 year, and 10 year intervals.
The litmus test is what your stomach does when the market is roiling, or turns bearish. If you are very risk tolerant, and have a strong stomach, history has proven that long term equity investing will give you about 11% annualized, regardless of ups and downs. With some additional management skills in handling your own accounts, or with strongly managed mutual funds, you can get closer to 17%. And the truth is, the current bull run may be the harbinger of a new paradigm on Wall Street. The new standard may rise to 20% or higher, barring any future crashes. Time will tell.
For the alternative investor, the objective is to gain more predictability and stability, and hopefully net out 15% or better, with out the roller coaster ride that Wall Street has historically provided up to this point in time.
However, most forms of alternative investing do require more hands on knowledgable and shepherding, with or without using self directed retirement plans. The nice part is, making the effort to perform these duties helps give you the knowledge and hopefully the discipline, to keep a sharper eye on protecting your nest egg - this factor alone is enough to justify the approach of using a selfdirected retirement plan for broadening your portfolio. You might want to consider opening a whole new plan for that endeavor, if you are so inclined, and leave your current plan in place, to provide yourself with a little more diversification.
Hope this helps, and Best of Luck
David Butler, VP Broker Relations