Self-Directed IRAs vs stocks: the current trend toward self-directed IRAs is likely to become a permanent one. The new investor mind set is looking for custom tailored retirement plans with the type of diversified investments that a self-directed IRA provides, according to the CPAs featured in this article from Market Watch:
CPAs Trending Towards Self-Directed IRAs as a Hedge Against Stocks
Broad Financial Sees an Uptick in Professional Interest in Self-Directed Platforms
One of the emerging trends seen at the recent New Jersey Society of CPAs Convention was the move by individual investors towards self-directed IRAs. CPA conventions are an exceptionally good place to measure investor sentiment, as these accountants are often involved in the real time financial strategies of their clients. What came out at the conference was a common consensus to diversify beyond Wall Street products.
Ken Schaum, a CPA from Rockland County, admitted that he has noticed a growing trend in investor dissatisfaction. “When a client is caught up in a rally, he tends to put all his funds into that specific asset. But when the rally inevitably crashes, reality sets in. The only key to avoid the crash scenario is to be properly diversified from the get-go.”
That explains the popularity of the Broad Financial booth. (Although the Godiva chocolate on the table didn’t hurt attendance either.) Broad is one a growing number of companies that provide investors with self-directed IRAs and Solo 401ks. Broad’s CEO, Brian Finkelstein, explained the growing popularity of self-directed retirement plans. “When the average American understands an investment, be it real estate, gold, or even a specific business, and then he/she compares it with the roller coaster of Wall Street… Well, there’s no competition. They just want to know how quickly they can get started.”
And it’s not just small boutique companies like Broad Financial that are noticing the swing in investor sentiment. Even big retirement players like Fidelity are jumping on the self-directed bandwagon. Fidelity’s home page now trumpets a message straight out of the self-directed playbook: “Start Taking Control of Your Personal Economy.” Fidelity still offers the standard Wall Street products, but the language of those offerings is being actively tailored to meet the new investor mindset.
The current percentage of investors who actually have retirement money in alternative assets is not known, but industry experts say that it’s approximately 1%. However, that number is quickly growing. Part of the rapid growth is due to the exposure that Mitt Romney has received for his own self-directed IRA. Coming in at close to $100,000,000, the implied potential has fired up investors to take their own alternate routes. Although few are likely to see the returns that Mr. Romney has garnered, they do expect to have more steady returns than they would see with standard mutual funds.
Mr. Finkelstein stressed that the move towards alternative investments is in all likelihood a permanent one. “A self-directed IRA is really just a tool for diversification. That means that there is no one asset which will suffer a bubble due to this platform. Just the opposite. The more investors who follow the self-directed route, the more diversified and the stable the economy will become.” If his prediction proves correct, then very likely these kinds of plans will gradually become the norm. Nothing inspires commitment quite like the quiet stability of success.