Benefits of Self-Direction & Tax Advantaged Plans

By Carl Fischer

Self-direction with tax-advantaged plans provides a myriad of benefits, personally and professionally, with financial and emotional attributes.

We will first discuss the personal benefits:

  1. True diversification
  2. Control
  3. Use your expertise & knowledge

The only way to obtain “true” diversification is with a self-directed account.  Anyone who has seen the bull or bear markets on Wall Street has been a witness to the lack of diversification in those products. One may also make the same argument with real estate if you own single family homes, apartment buildings, retail space, offices, etc. In both of these cases one is not “truly” diversified. If one wants hard assets such as real estate or gold bullion, or paper such as notes, mortgages and tax liens secured by hard real assets, or even private stock in local businesses, it is imperative one have a self-directed account to achieve true diversification. This will allow one to use their own knowledge and expertise and have some control over the investment type and class, which is a key component.

Question: Is your financial future invested in something you know and understand or are you using “HOPE” as a strategy?

Control is not meant to be confused with risk but rather one understands the risks and has more control over the outcome. We don’t know of any investment yet that is without risk. The financial and emotional rollercoaster many individuals experience is because they are not aware of the factors that can influence or control their investments. It is particularly disheartening when an event halfway around the world is blamed for the loss of thousands of dollars worth of wealth in a portfolio or retirement plan. A broker responds,”Don’t worry, it will come back someday”, and hopefully you live long enough and don’t need the cash flow at that time. Risk is more a factor of knowledge, expertise, and control than it is related to return or reward.

Fact or Fiction: “The higher the risk the higher the return”

Example 1: The return on FDIC-insured CD’s — in 2005 a five-year CD was paying 5% and in 2011 a five-year CD was paying 2% (60% less). The U.S. credit had been downgraded by the S&P, the U.S. debt had increased significantly from 2005 and banks were in some of their worst times in history. The risk was significantly higher, yet the yield/return was significantly less.

Example 2: Interest rate on a note/mortgage for a house — the better the credit score and the higher down payment and lower LTV in most cases results in a lower interest rate or return for the lender and consequently the inverse is also true. This comes primarily because the lender statistics show less problems based on those parameters. This again reinforces that knowledge and expertise are key in determining risk and reward.

Client quote: “Self-direction is not a passive approach and will require some effort, but it’s worth it in the long run.”

The professional benefits of self-directed accounts are somewhat dependent on your profession. However, this is a new source of money and an alternative to bank financing for many individuals:

  • The realtor may sell more homes directly to the IRA or the IRA may finance a home for an investor or home buyer resulting in more sales and more commissions.
  • An existing business may need to expand and need a short-term construction loan which the IRA could provide.
  • A new venture or business could be started with an IRA loan or equity position in an LLC, LP, or other entity.
  • A discounted note could be purchased and a workout with an existing family could be negotiated for a recorded lien on a hard asset.
  • Precious metals dealers have access to clients that see their wealth eroding with the dollar.
  • CPA’s and CFP’s can take a comprehensive approach to protect and grow their client’s wealth and provide true diversification.

The good news is it does not cost you anything to add information to your website about self-direction, or talk to your friends, family, business colleagues, etc. Please contact us at to get your specific questions answered by a member of our team.

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