Top 10 Reasons Why You Should Self-Direct Your Retirement Instead Of Investing In Mutual Funds

There are thousands of so called financial advisors that tell you that you should invest in mutual funds, money market accounts, stocks, bonds and life insurance policies and diversify your retirement portfolio. This is some of the worst financial advice you can get and the general public has been duped by the large investment companies like Fidelity, Charles Schwab, and the large banks for years. These so called financial advisors that work for these big companies have very limited to no training and are not incentivized in the right ways. They make so much money off of trading fees and annual fees that you can never get ahead even if they could outpace inflation in the first place with their investments. Well you do not have to put up with this theft anymore. There are retirement vehicles and custodians out there just like the Fidelities and Charles Schwab's that enable you to self direct your retirement into almost any investment options you want and control your own financial future instead of handing it off to one of these so called financial advisors. What is a self-directed retirement account? It's an account just like what you would have in Fidelity or a similar company but you can invest it in pretty much whatever you want instead of being limited to what the Fidelities of the world allow you to invest in, that they make the most fees on. So you can open an IRA, 401k, Roth IRA and HSA (Health Savings Account) that you can actually make decisions with and invest with. Here are the top 10 reasons you should self direct your own retirement instead of giving it to one of these large companies that basically steal your money in fees.

(1) Self-directing your retirement account is the only way to protect your own retirement. If you do not take control of your own retirement investing and educate yourself on alternative investment options you will lose purchasing power and your retirement accounts will probably lose another 30% - 40% like we just saw with some of the major economic problems we are seeing. Massive inflation is looming so you have to invest in assets that produce a higher return.

(2) Self-directed custodians typically have fee structures that do not completely deplete your returns like the traditional IRA and retirement companies. Typically you have much smaller transaction fees, much smaller annual fees and you can find ways to cut down on fees even more as a percentage of your retirement account. You want to keep the interest and returns you make, not pay them back in fees which can significantly hinder your retirement's growth.

(3) You can build your retirement a 1000% faster by self directing your retirement than not. If you are investing in traditional investments like mutual funds and stocks you are only going to make the long term historical average of those investments at best depending upon the economic stability of the market. The long term historical averages are close to 8% - 10%. With inflation historically at 3% - 3.5% and even higher inflation expected that is not a high enough return. By investing in alternative investment options like real estate you can make 15%+ returns on your money without even using leverage. You can even leverage real estate (get a loan for real estate) inside your own retirement account increasing your returns to 20% plus. Now that is power especially when you can do it safely with the right risk mitigation techniques in place.

(4) By self directing your own retirement account you can actually actively control your investments. When investing the traditional way you have absolutely no control and have a significant amount of risk when investing in mutual funds and stocks. You are at the mercy of what the market does. When you self direct your own retirement you can control the assets inside your account. You can structure the investments so that no matter what the market does you are making residual cash flow inside your account so you do not have to worry about market fluctuations. You also have the power to increase the value of the assets inside our account. Also, if you buy discounted real estate inside your IRA not only can you then go sell for a huge profit but you are building your retirement account tax free.

(5) Tax free investing is one of the largest benefits of investing in a self directed IRA. Can you imagine buying a rental property worth $100,000 for $75,000, renting it out for $1,000 per month, having all of the income going back to your retirement account tax free and then when you go to sell the property for $100,000 the $25,000 in profit is tax free also. No capital gains taxes and no taxation on the rental income. This can compound the growth of your retirement accounts at an amazing pace.

(6) Building an annuity inside your retirement account is crucial to your retirement plan. For example, if you need $5,000 a month to live on during retirement and are able to make a conservative 10% on your money inside your account you need $600,000 in your retirement account in order to retire and NEVER deplete your principal. If you leverage your investments and make 15% on your money inside your retirement account you only need $400,000 in your retirement accounts. So unlike what most financial planners will tell you, you don't need $10,000,000 dollars inside your retirement account to retire. Now keep in mind if your expenses are $5,000 per month, you want to be making $7,500 per month passively so that you can continue to build your income and protect yourself from the loss of purchasing power due to inflation.

(7) Current tax planning and saving on current taxes is a huge advantage for self directed investments. If you invest in an IRA your current contribution limit is $5,000 and $16,000 for a 401k. This can bring a big tax advantage because the contribution directly decreases your taxable income dollar for dollar. If you setup a solo (k) plan or pension plan you can contribute close to $100,000 per year and reduce your taxable income by $100,000! This is unreal. You are saving $35,000 per year by doing this if you are in a 35% tax bracket. Tax rates are rising because the government and states are broke so it's even more crucial to plan for taxes. You can then go take that $100,000, invest in passive cash flow investment property right and have the income making you 15% plus on your money. With both combined you just made $50,000 ($35,000 tax savings + $15,000 interest) on your $100,000 that year. Now if that is not going to get you to your goals I don't know what will.

(8) Self directed investing increases your education and ability to protect yourself instead of relying on someone else for your retirement. By self directing your retirement you are now taking control of your own retirement. With that comes the need for you to educate yourself on additional investment options and the risks and rewards of those options. This education is going to be key to your future financial success and stability. The more you educate yourself the more stable you will be because as economic changes happened you will be in a better position to protect yourself and adjust your retirement portfolio according to those changes.

(9) Additional investment options are needed in order to secure your future. There are so many investments that produce additional returns. You can still invest in stocks, bonds, mutual funds like traditional companies allow you to invest in but you can also invest in real estate, promissory notes secured by real estate, tax liens, businesses, syndicated and structured investments and much, much more. Your options are limitless.

(10) Your piece of mind knowing that you have been able to structure yourself to protect against economic fluctuations is HUGE. Now you can rest easy knowing that you have educated yourself correctly, have invested in vehicles that can give you higher returns, and have the power to control your own financial destiny is the best benefit you can ask for. Most people have little to no financial knowledge and that is why most people are broke. The more you educate yourself the more successful you will be.

There are many companies out there that can help you self direct your retirement account and many companies out there that can help you structure your self-directed IRA into multiple cash flow streams. Learn from those companies and push yourself to take action on your own financial future instead of relying on so called financial advisors to do it for you, but are failing at an alarming pace.

Owens Consulting Group founder Mathew Owens is a California licensed CPA and a full time real estate investor. Mathew has 8 years of experience working as a CPA, auditor and business advisor, and he has completed over 100 transactions in the past three years, representing approximately $10 million in real estate, most of which has been sold to cash flow investors. Read more of his blogs at http://ocgproperties.com.

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Is Lotto Really A Viable Retirement Solution?

According to a Canadian survey of baby boomers conducted for TD Waterhouse in 2010, 32% of those polled said they were counting on winning a lottery to fund their retirement. "While this statement may be tongue-in-cheek, according to the survey results, this group is less likely to have a financial plan and more likely to be anxious about retirement and feel behind in their savings," according to a TD Waterhouse statement. Whether the responses about winning lotto were serious or not, the data clearly indicated that a lack of retirement security is a source of distress for those who responded.

A separate poll released early in 2011 by the Canadian Imperial Bank of Commerce (CIBC) indicated that you are more likely to be more successful in your financial planning if you have a goal in mind and a roadmap to get there. In a survey for Standard Life, 41% of those respondents were unsure if their rate of saving would provide enough for them at retirement.

Typically, financial advisors advocate "save more, save more, save more" as the answer to how to increase the amount available for retirement and other needs. But for many, saving more is simply not an option, because they are not earning enough to have additional funds to save and invest. Others may be able to save more, but are unwilling to do so because they do not want to live a diminished quality of life while saving for a time that they may not live to see.

Some baby boomers are waking up to the fact that there is another retirement solution - create new sources of income that will provide them with monthly cash flow and a residual payment in the future. They are no longer working for a paycheck; they are building a millionaire business for cash flow and financial security.

If you are interested in creating a new source of income with a millionaire business, start with what you know best, what I call your 3 "S" Factors: your skills, your strengths, and your successes. Create a product or service around these factors that other people want or need and have already demonstrated a willingness to buy. Then identify a small segment of that market to focus on, called a niche market.

You will have the best chance for success if you give your niche market what it wants to buy. Not sure what that is? Then ask the people who are in your niche market. Do a simple survey, either online or offline. Here are a couple of ways you can do it. First, if you are near a college, ask if your survey can be part of a market research class. Need faster results? Find out where the members of the market go and have to wait, and survey or interview them while they are waiting. For example, if you need to survey moms, ask them to fill out a short survey while waiting in line to pick up the kids from school. The key is always to think like your potential buyer, but you have to know how they think first.

Do you have a friend who knows you so well that she can practically finish your sentences for you? That's how well you want to know your niche market. You want to know exactly what the members of that niche market are thinking so you can offer them exactly what they want.

You will want to customize your product or service for your niche market, so consider how you can modify the elements of the marketing mix: the characteristics of your product or service, your promotional strategy, how you will deliver the product or service to the customer, and the price you will charge. (Here's a hint: never compete only on price. When you compete only on price, the market sees your product as a commodity, with no distinct market advantage, and you can easily get locked in a downward price spiral.)

Start today to build a millionaire business so that you don't have to rely on winning lotto to be able to have the retirement of your dreams.

Are you afraid that you won't have sufficient income for retirement, which seems to be approaching faster than a speeding bullet? Maybe you want to be able to assure your kids a college education at the school of their choice, or have debt that you want to eliminate as fast as possible because you haven't had a good night's sleep in months.

Join other entrepreneurial women and aspiring millionaire business builders who want to grow a Millionaire Business that will provide cash flow now and financial security for a lifetime. Jan Sandhouse Hurst has taught hundreds how to grow and improve their businesses. Get her free tips and training at Millionaire Business Blog.

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Will You Have Enough Money in Retirement?

Articles abound with the claim that - if you save $100 a month, earning 10 percent per year, you will have a given sum of money in 30 years. These simplistic future-value exercises (also known as deterministic calculations) are helpful in explaining the potent effect of compound interest and encouraging investors to start saving early; after all, it was Einstein who once said, "the most powerful force in the universe is compound interest." The problem with such deterministic calculations is that they assume the average annual earnings will remain constant throughout the investment period - in other words, investments will always have positive returns.

If we have learned anything these past few years, it is that stock markets do not always earn positive returns each year, and that returns can be volatile. Until recently, most financial advisors used deterministic calculations to forecast future portfolio values; however, such calculations fail to answer the most crucial questions on an investor's mind: Will I have enough money to retire? What if I run out of money? Am I saving enough to reach my goals? -- Each of these questions are valid and should not be discounted when developing an investment portfolio. After all, you hire a financial advisor to help you answer these exact questions. Therefore, in recent years, financial advisors have shifted away from using deterministic calculations and toward Monte Carlo simulations to be able to answer the aforementioned questions with a greater level of confidence.

Monte Carlo simulation is a robust algorithm used by financial advisors to estimate an investor's probability of meeting his/her financial goals. Instead of using a single future value based on deterministic calculations, Monte Carlo simulation calculates your portfolio value under thousands of random scenarios that may affect portfolio value, and then takes the average of those scenarios to determine a probability of success. It provides information about the range of possible outcomes and the likelihood that each outcome will occur. For many years, financial advisors were limited to deterministic calculations mainly because the computing power was not available in most commercial investment software. Now with more advanced planning software available, more advisors are using Monte Carlo simulation methods to make better informed investment decisions.

Monte Carlo simulations are widely used and relied upon across many industries beyond finance. In fact, it was used to develop the hydrogen bomb; it was used by NASA to determine how the Ares I rocket launch vehicle would behave in flight; and is used in nearly every analysis involving risk management. Because of its reasonably reliable outcomes, financial advisors who accurately use and interpret Monte Carlo results can add tremendous value to their clients.

To illustrate how Monte Carlo simulation models work, assume that the far left column in the chart below is your current age, and the first row is how much money you plan to save each year until retirement. Assume further that your current portfolio is worth $25,000, you plan to retire at 65, and your estimated total expenses will be approximately $50,000 a year for 30 years of retirement. What is the probability that you have enough money during retirement and reach your financial goals?

Additions to Savings Each Year (current portfolio value is $25,000)
Age $5,000 $7,500 $10,000 $12,500 $15,000 $17,500 $20,000 $25,000+
25 <40% 84% 99% 99% 99% 99% 99% 99%
30 <40% 53% 90% 99% 99% 99% 99% 99%
35 <40% <40% 62% 91% 99% 99% 99% 99%
40 <40% <40% <40% 56% 86% 99% 99% 99%
45 <40% <40% <40% <40% <40% 65% 88% 99%

If you are curious to know whether your current savings will last during retirement, use the chart above to find your approximate age and annual savings. For example, if you are currently 45 years old and save $15,000 a year to your $25,000 portfolio, you have a less than 40 percent chance of being able to retire at 65 and live off $50,000 a year. To increase your chance to 88 percent, you would need to save $20,000 each year to meet your goals. Keep in mind that if your current portfolio value is greater than $25,000, then your probability of success will be higher or vice versa.

All financial models, no matter how robust, are subject to limitations, including Monte Carlo simulation. The biggest limitation of Monte Carlo models is the use of historical data to predict future portfolio values. While we can never accurately and consistently predict future investment returns, using historical returns and patterns allow us to gain some understanding of investment returns.

Users of Monte Carlo simulation models must fully understand its application, know how to accurately enter data, and most importantly, appropriately interpret results. Despite its limitations, we cannot underestimate the powerful capabilities of using Monte Carlo simulation. Do not rely on simple future value calculations to predict your financial success; seek a trusted financial advisor who uses and understands Monte Carlo simulation techniques to prepare your comprehensive financial plan to increase your chances of reaching your financial goals. You should never have to wonder, "Will I run out of money?"

ACap Asset Management is an independent, Fee-Only Investment Advisory Firm. At ACap, we believe in investing, not speculating. Our goal is not to speculate on the direction of the market, but rather to achieve a healthy rate of return that allows our clients to reach their financial dreams without exposing them to unreasonable risk.

Our clients rely on ACap as their trusted and independent financial expert because we are committed to upholding the highest measures of financial knowledge, objectivity, and ethical practices. Whatever your financial goals may be, ACap can help you reach them.

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Ara can be reached at aoghoorian@acapam.com, on the web at http://www.acapam.com, or on Facebook by searching ACap Asset Management.

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Investing By Age

Simple advice can create problems that are not always simple to fix. One example is the advice that an investor's age plays a central part of their investment strategy and asset allocation (for example standardised high risk strategies for young investors and conservative strategies because you are already, or close to being, retired). This advice is too generic and the individual's circumstances and appetite for risk must be taken into account. If you follow this type of generic advice you may find yourself having sleepless nights and worrying needlessly about either investments considered too risky or of running out of money.

Today's 65 Is Not Yesterday's 65

A lot of investment advice is predicated on what might be called a life-cycle theory of investing. This is an idea that people go through predictable stages of their financial lives, accumulating more assets than savings in the early years, saving more in the high-earning years of middle age, and then very little, if any, saving throughout retirement.

Things have changed, though. Long careers at a single employer are less common, people are tending to have children at an older age, be responsible for older dependents as well; and with people living longer than ever before, reaching 80 years is no longer unusual. However, much of the retirement advice presently published is predicated on old data. So with today's 65-year olds lifespan significantly higher than yesterday's 65-year old, even with superannuation guarantee legislation most Australian workers are significantly under-saving for what it is likely to be their lifespan.

Your Age Is Not Your Number

There are several published investment suggestions which can be considered dangerous, especially without seeking specialist investment advice for your particular circumstances. One such example often touted around the weekend BBQ is that a person's age should correlate to the percentage of their portfolio that should be invested in bonds or a similar conservative asset class. The suggestion being that a 30-year old should have a 30% allocation to bonds, whilst a 65-year old should be 65% allocated to bonds. Rather, this suggestion should perhaps be, in the extreme, where a newborn should have a zero allocation to bonds, and a centenarian a 100% allocation to bonds. Humans differ and individual circumstances differ, so seeking advice from a professional expert is important, nay critical.

Shares Are For The Long Term (and may not be as risky as you think)

People who are a little sceptical about shares should know that the risks accompanying equity investments may not be as great as they think. Whilst putting all of your money into a single share (or even similar group of shares in one industry) is risky, a diversified portfolio of shares covering varying industries, offers a different and less risky option.

Multi-year losses in the stock markets are rare, and that is a powerful advantage for investors. As long as an investor holds a diversified portfolio and invests for the long-term, the odds of losing money is actually quite low and the odds of achieving positive real returns are good.

What Is The Real Risk?

As much as we can focus on the risk of loss, that is not the only risk that matters. A person can consistently save a little each week for 40 years and invest that money very conservatively and never see a down year in their portfolio. However, that same person could find themselves 10 or less than 20 years into retirement with no money, then requiring total dependence on the Aged Pension, even though this investor was completely risk averse.

Investors should be aware that this risk of failing to accumulate enough assets to last through retirement is a real risk and a real problem to be addressed.

So, What To Do?

Firstly, plan for a healthy, happy retirement. Be very suspicious of any simple rule-of-thumb about how much to save or how to allocate and invest your hard-earned savings. Think carefully and seriously about what your actual retirement needs are and speak with a qualified investment advisor. Be informed, consider what your retirement goals are and how you will be able to achieve them. Be honest with your advisor. If you can not speak openly and honestly with the advisor you have chosen, find another to whom you can speak openly and honestly. Remember the advice may cover such issues and recommendations that you don't like - such as your need to lower your spending expectations in retirement, save more today, seek higher investment returns, or perhaps all three plus others for you to consider. Be informed and carefully consider your appetite for risk - you may consider that the risk of running out of money in retirement is worse than losing some money today, and that the long-term benefits of diversification outweigh the risks.

For further information speak with a financial advisor or self managed super fund specialist.

Disclaimer

The information contained in this document is based on information believed to be accurate and reliable at the time of publication. Any illustrations of past performance do not imply similar performance in the future.

To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information, or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this communication.

This information is of a general nature only. It is not intended as personal advice or as investment recommendation, and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should read the product disclosure statement of any financial product referred to in this newsletter and speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives. financial situation and needs.

Notice

Except as required at law, Leenane Templeton The Self Managed Super Specialists Pty Ltd does not represent, warrant and/or guarantee that the integrity of this communication has been maintained nor that the communication is free of errors, virus, interception or interference. It is the responsibility of the recipient to virus check this web site and any attachments.

Leenane Templeton are Chartered Accountants, Financial Advisors and The Self Managed Super Specialists. Our team of experts help with a variety of financial planning and superannuation advice. For full details about our financial advisory, self managed super fund and accounting services please visit http://www.self-managedsuperfund.com.au web site.

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The Power of Tax Deferral

Annuities have two functions: the first is the accumulation stage where the account holder deposits money, sometimes called purchase payments, in an on-going basis and sometimes in one lump sum. The next stage of an annuity is the payout stage, where you simply began to withdraw your money out of the annuity.

The accumulation of your money within the annuity is depends on what type of annuity you own. The value of your money will grow either by the interest rate that is set by the insurance company called a fixed annuity or you can take advantage of the stock market without the risk of the stock market with an indexed annuity. What I mean by that is your money has the potential for growth during prosperous economic times, but should the stock market crash your guaranteed not to lose a dime of your initial premium and credited interest. Both types of annuities allow your money to grow tax-deferred.

Something important that I want to note is that tax-deferred is not tax-free. An example of a tax-free investment is a municipal bond which doesn't incur any income taxes on gains whatsoever. Annuities are tax-free during their growth period allowing your money to double quicker, but when you choose to withdraw your money, you will be taxed on the gains from your annuity.

Now I'm going to talk about two rules worth knowing; the rule of 72 and the rule of 108. You often hear about those rules but I've found that a lot of people don't quite understand these principles. The rule of 72 estimates how long it takes tax-deferred money to double at an anticipated growth rate. What does that mean? Well, let me give you an example. Let's say you earn 6% per year, so you take 72 divide that by 6 and you get 12 years. So that means with a tax deferred investment, like an annuity, in 12 years your money will double at 6%. The rule of 108 is the time it would take for a taxable investment to double. Let's say you have your money in a CD, mutual funds, or stocks and you're paying taxes on that money every year; using the same example of the growth rate being 6% per year. So 108 divided by 6 is 18 years. It would take 6 years longer for a taxable investment to double, showing the clear difference of the compounding, tax-deferred interest you only get with an annuity in a nutshell.

The power of tax-deferral is clear, but there is something else I want you to keep in mind. With higher interest rates, higher tax brackets, and longer maturities, the power of tax-deferral becomes even more apparent.

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