Roadhomeinvestments’s Weblog

The good news is: we are all going to live a long life. The bad news is: we are going to live too long.  How will you have enough money saved to afford to live? Current life expectancy is 86, and continues to climb. The reality is if you retire at age 65, how can you be sure you’ll have enough to continue your lifestyle for the rest of your life?

The fact is, in 20 years, your dollar will be worth 45 cents. In January of this year inflation was 1%.  If that continues, it will destroy a lot of people’s savings over the years. You can no longer follow the age-old traditional advice of putting all your assets into bonds, CD’s and cash, which are more conservative. You have to keep investing actively and you have to diversify, or you’ll be forced to work beyond retirement.

The boomers that are now retiring are moving away from 401Ks and other instruments that give them limited choice investment, and are moving into more self-directed investments.   Self-directed investing allows for opportunities like private equity, real estate, foreign investments, foreign stock, and a variety of other investments.

The new concept of “life planning” is beginning to look at retirement as just another life stage, which may involve work, travel, research, whatever you choose to do when you are not dependent on your current occupation. It requires active planning and management by professionals. It’s only been in the last 10 years that the common perception is that we are going to live longer, and can start planning later in life.

In the past, retirement investing has been limited to stocks, mutual funds, CD, bonds, etc. Yet, a recent study of high net worth clients found that 55% of the highest performing, largest balance portfolios are heavily invested in alternative assets (about 80% of the portfolio). Alternative can be a good thing, a way to balance out and diversify your holdings.

Many financial planners suggest that you shouldn’t get a high yield in your IRA account, because if you do you’re going to have to pay more tax. Anybody that advises people not to grow their IRA may as well suggest not having an IRA. What’s the point of putting money in unless you will get a return?  You’re not intending to try to lose money by having an IRA; you’re trying to maximize the yield on all your assets through diversification and careful selection. You certainly don’t want to slow or limit your growth by picking investments that are not going to grow. That doesn’t make any sense. Sure, you’re going to have to pay ordinary income taxes, but isn’t it better to pay tax on something, than no tax on nothing? These common misconceptions occur because there is such a lack of knowledge on self-directed IRAs, because the topic is so new to many people and not yet in the mainstream (self-directed IRAs currently represent only 3% of total IRA assets).

The bottom-line is not what the tax impact is on investment, but whether that tax impact still results in a higher yield on the investment. Overall net after tax income is more important.