Most of my product and service development is centered around the theory that for most average Americans, a self directed IRA/401k actually is too risky. The conventional way of investing involves pushing a button or placing a phone call to effect a securities transaction. This new way of investing holds potential power, but for most people simply opening an account and then being thrown out to the wolves doesn’t work very well. This type of balanced viewpoint is not usually spotlighted by companies who make their money in convincing people to open self directed accounts. There is a lot of focus on opening accounts and setting up LLCs, but very little focus on how to actually find, evaluate, and buy profitable alternative assets.
So how well are accountholders doing in isolation? It’s very hard to tell because there’s never been a survey done to get a good feel (I’m currently working on having IRAAA perform such a survey). My involvement in the field has found me often times listening to people’s investment plans, and although I haven’t followed up with everyone whose plan I’ve listened to, I would speculate that many have proven to be disastrous. I’ve heard people talk about putting all of their IRA funds into a deposit on a pre-construction property in a soft real estate market with no plan or resources to close on the property. I’ve heard people come up with creative ways to break the prohibited transaction rules, planting a time bomb that goes off in the event of an IRS audit. And most of all, I’ve heard thousands of people talk about throwing diversification out the window simply because real property and private businesses costs more than a stock or mutual fund.
The main cost of isolation is that thousands of people can be suffering the consequences of the same basic mistakes. Sounds pessimistic right? Don’t worry I think I have a solution and it’s coming in a future post.