Thoughts on Wall Street — and Control — YOURS!

Sooooo, is Wall Street a scam?! Well, actually, while we might believe it is at times, most likely it is not. But, with all the rash of problems in the market that has surfaced and continued to hold high its ugly head over the last couple of years, one does definitely wonder. Since, there are many articles and posts devoted to the woes or Wall Street, let’s take a higher road and just provide some good, basic education to those of us who are interested in protecting, nurturing and growing OUR retirement accounts.

It is amazing that most of us have, collectively, done a poor job in taking care of our financial assets. Many individuals incorrectly believe that the only assets their retirement assets can invest in are stocks, bonds and mutual funds. Recently, it was estimated that 98% of individuals DO NOT know that they can control their own retirement accounts. What is not amazing is that there are many professionals in the financial advice world who do not believe that it is in THEIR best interests to advise their clients of this option….and we all know why they may feel that it is not in their best interest$$$!

Now, yes, there are exceptions to individuals not being allowed to self-direct their own retirement assets –- chiefly, that most individuals cannot withdraw funds from a current plan they are participating in with their current employer.

So, what is a self-directed IRA or 401K? Well, let’s use simple terms. It is merely the opportunity to invest you retirement account assets into practically anything YOU feel is a good investment. Are their rules that govern these transactions…of course. But, they are the same rules that affect any retirement account. The IRS identifies Prohibited Transactions and does stipulate what types of assets cannot be purchased from a retirement plan, which individuals cannot participate in these investments, and restrictions placed on the plan’s fiduciary (you) from benefitting other serving as the fiduciary of the plan.

BUT, here are the simple facts…if YOU could direct your own retirement assets into a plethora of investment opportunities, wouldn’t you at least wish to consider this??!! Also, if your retirement account was established where from one account, you still had the ability to invest in both “traditional” and “non-traditional” assets, wouldn’t this be the cat’s meow! Not only is this possible, but it is legal as long as the plan is established in compliance with IRS and ERISA regulations and does not violate IRS Prohibited Transactions.

A great quote from Tama McAleese, CFP in Get Rich Slow, notes The Million(s) Dollar Mistake that most individuals can make.

She states, “As a result (of others controlling your money), you’ve been lulled into a sense of security; believing someone else is standing guard over your hard-earned money and, thus, guaranteeing your financial future.”

To demonstrate this further, one only need look at a gentleman who recently called our office with a very sad story. Now, before I tell you his story, I will predict that many if not all of you will say this gentleman was stupid, crazy, insane…and you may be right. But, the real story here is that he is a normal person who got caught in the Wall Street “game” and no matter what he did, things got worse. You see, this gentleman had an account of $150,000 with a well-known financial planning services company. By the time we spoke, the balance had dropped down to $53,000. How sad is that?! Now, being true, had this gentleman self-directed his IRA it wouldn’t have necessarily meant that he wouldn’t have lost more! But, the fact was, he thought he had no other choices. Right or wrong, good or bad…had he known he had other choices, he could have at least explored them…right?! And, how does one lose nearly two-thirds of his assets and his financial planner still says with a straight face that they are “looking out” for him?

An amazing statistic from the Investment Company Institute and the Internal Revenue Services Statistics of Income Division found that at the end of year 2004, there was in excess of $3,475 TRILLION in retirement plan assets. Of this money, 83%…yes, 83% of those funds were invested in stocks and mutual funds…now that is true diversification (sarcasm is drooling from my mouth). LESS than 1% was invested in Real Estate even though much of the self-made wealth in this county was a result of investing in and owning real estate. Oh, and whether people made money, lost money, made and lost money, etc….do you think that significant commissions were paid to brokers?! I think you know the answer to that. Hey, fun fact…do you know that in a recent year (2006) only 7% of all the transactions that occurred in the market was to SELL??!! Think about it. Really, think about it.

Okay, so you may be thinking that the aforementioned statistic goes back to end of the 2004 year and things have drastically changed. Well, consider this statistic as noted by USA Today which stated in 2008, the market had lost 2.1 trillion dollars in value, $1.4 trillion in the month of June, ALONE. Now, that represents stability and diversity, right (sarcasm oozing again)!

Finally, if anyone believes that the “average” retiree is retiring with financial dignity (which I don’t think most of you do…but just in case), consider this important statistic as first published in the November 27, 2005 edition of the Christian Science Monitor. This article identified the median income of individuals 65 and over as just $15,199!! And, unfortunately, a large portion of this income came from social security.

Let’s face it…Hope is not a Strategy! If you are an individual who has done well with the traditional offerings of stocks and mutual funds…congratulations! But, for those of you who haven’t and may be looking for additional options and further diversification strategies to the “traditional” world of investing outside these assets, just know you have options to control your own retirement funds and take control of your assets. It MAY just be more lucrative for you, and at least you may not be relying on someone else to control YOUR MONEY.