With peak uncertainty about the economy and investments, Jeff & Rachel discuss the importance of diversifying your investments beyond stocks, bonds, ETFs, etc. Did you know there are 3 types of Self Directed IRAs? Which one you choose will have a big impact on your ability to make smart investment moves throughout the financial crisis. Learn the ins and outs as well as the pros and cons of the 3 types of Self Directed IRAs.
With peak uncertainty about the economy and investments, Jeff & Rachel discuss the importance of diversifying your investments beyond stocks, bonds, ETFs, etc.
Did you know there are 3 types of Self Directed IRAs? Which one you choose will have a big impact on your ability to make smart investment moves throughout the financial crisis. Learn the ins and outs as well as the pros and cons of the 3 types of Self Directed IRAs.
Rachel:
It's time to take control of your money, your health, your time, and your life. I'm Rachel Nabers.
Jeff:
I'm Jeff Nabers.
Rachel:
Welcome to self directed life.
Jeff:
All right, so today we are going to talk about what got me into the self-directed life, which is the self directed IRA. Before we jump into that, I want to talk a little bit about just kind of an update on what's going on in the world today in the middle of this Corona virus crisis and the financial crisis. So I think we're at a time right now of kind of peak uncertainty. By that I mean that there are people who are being very optimistic now. They're seeing the stock market rising and then they're seeing the president talk about opening the economy even as early as May 1st. And then there are people that are very pessimistic and basically saying the dominoes have just begun to fall. Or you know, one person is talking about this is like a series of massive tsunamis that are all coming at us and with a tsunami. It's like, there, it is way out there. It's on the way in, you know, until it hits you, you're on the land and everything seems fine, and then it just wipes you out. So I think I want to address the question here in the beginning of just, is this an oncoming tsunami or are we about to have a V bottom recovery?
Rachel:
Yeah. And there's, there's certainly two schools of thought, right? I, I know that there's many prominent people in the public eye that believe that the worst is already over. This was more of a shock than a recession. And we're just gonna maybe it'll take a little while, but we're definitely just gonna essentially bounce right back.
Jeff:
Yeah. I'll say the two things that we've recently watched and people we've heard from that are on the, you know, we're going to get through this and it's not going to be as bad as people think side of things, is number one, a Mark Cuban was regional recently on a podcast and had that kind of an attitude. And then number two, another podcast that Cathy Wood from Ark Invest was on.
Rachel:
I love both of those guys. Love Mark Cuban, love Cathy Wood.
Jeff:
Yeah, exactly. And you know, probably everyone listening knows who Mark Cuban is. Cathy Wood is a woman who started a financial firm a few years ago and really stuck her neck out there a while back being bullish on Tesla when it was really cool for everyone appearing on TV to be bearish on Tesla. And she stood her ground. She basically argued with idiots and she was completely right in the idiots, as always were wrong. And so, you know, people want to hear from people who were right, what they think is coming next, and she thinks that there might not even be a recession. So I just want to acknowledge that, you know, those people might be right, those people might be right. And yet at the same time, it might be correct to say that the dominoes have just begun to fall. The ripple effect, however you want to think about it. You know, you can't just shut down the entire economy in normal way of life and then expect it to not have a second and third and fourth order consequences. So as humans and as investors, I think right now it's time to do something that might require a little bit of personal growth. And that is to actually accept the uncertainty. Far too often people have a tendency to need to choose a side and I get it. That's how the Superbowl works. Who are you rooting for? That's how politics work. Which side are you rooting for? That's how sports work in general.
Rachel:
And politics is almost like sports these days anyway.
Jeff:
Yeah. If you just squint your eyes a little bit, it's hard to tell if you're watching the presidential election or the super bowl. It's true. It's this side versus that side. Lots of drama. The colors, the drama, they're undying support for either side, no matter how good or bad they're doing. And now the real world doesn't always have two sides. And in the real world, the two sides that we might imagine that we make up in our minds, you know, neither of them might win because we just imagine them in the first place. You know, we're in a very complex situation. It's all going to be okay or it's all going to hell in a hand basket are two extremes and there's an infinite spectrum in between them. And the reality is we really don't know which one is right or where in the middle it is. Most of us are going to feel this knee jerk reaction of like which one I got to pick this side. The virus is a hoax. It's not real. Everybody already has it. It's, you know, it's all a psychological operation. And then on the other side, by the way, this is the normal way to start talking about self directed IRAs. Right?
Rachel:
I think so. Yeah.
Jeff:
The standard, from now on this how everybody will talk about it. But, in all seriousness on the other side of things, you know, a lot of people are going like this you know, this is five G and 5g the new cell phone tower system created this and it's suppressing immune systems and all this stuff. And you know, we really don't know what's going on with this. And in particular with the virus, we don't know. And in the financial system, we're in completely uncharted territory. We've never had a situation exactly like this with all of these factors intersecting at the same spot at the same time. So as people and as investors, when we've got our chips and we're at the table that we're always at and we've got a place, our chips, my recommendation is don't go all in on either extreme. You need to find a way to be comfortable with not knowing because this is a real opportunity for personal growth.
Jeff:
If we want to dig into the investment side a little bit, then that means that this is not the time to...if somebody says, okay, would you go all in on stocks or all out of stocks right now, as a, you know, what would you do, or theoretical question or hypothetical question. Yeah, great. Whatever the answer is, doesn't matter what are you really gonna do? And if the, if that's the question, it's the wrong question. You shouldn't answer that. It's a multiple choice between two stupid things being really extreme. The right way to ask the question is to say how are you going to diversify and hedge your risk? And I think the answer there is that you have to go beyond stocks and bonds and you have to go beyond traditional investments and publicly traded securities, and it's really time to truly diversify. And that's what brings us to a self directed IRA.
Jeff:
You know when I got into self directed IRA is around 2003, you know it was just a way to for an investor who wasn't particularly interested in stocks and bonds to just you know, round up some funds and invest in real estate.
Rachel:
Well hold on. I want to pause for just a moment because I mean this is sort of the water that we swim in his self directed IRAs and retirement accounts and things. In case you've never heard of this concept, there is something totally legal and compliant and the IRS is cool with it that you are able to decide how your retirement funds are invested, and I don't just mean that you have a brokerage account where you get to choose between a moderate or aggressive portfolio. I mean you actually have the freedom to say, Hey, I want to invest these IRA funds in a private company or buy a piece of real estate or buy gold and silver or buy Bitcoin or buy tax liens or, you know, insert investment here. That's legal, that's allowable and it's something that's available to you.
Jeff:
Absolutely. Yeah. That's the first message here. You can invest your retirement funds, which may currently be sitting in an IRA, a traditional IRA or Roth IRA, 401k, 403B, 457 Keogh plan, any kind of defined contribution retirement plan, which is basically governed by Arisa, and you know, with IRA internal revenue code section 408 on the 401k side, section 401. This whole retirement account thing that over a hundred million Americans have that has, who knows what it is now with the values have changed so much, but you know, 10 or $20 trillion, probably closer to 20.
Rachel:
in retirement accounts,
Jeff:
In retirement accounts collectively, this bit of money, this, you know, $20 trillion of money can be invested in almost anything, but almost all of it is currently invested in stocks and bonds. And it's because there's an awareness problem at what Rachel just said out there is absolutely true. You have the legal right and ability to take that money that you have, within your retirement funds, and invest it in virtually anything. You can invest it in stocks and bonds, but you don't have to only invest in stocks and bonds. So a normal brokerage account has the actual retirement account itself, like a Siamese twin tied to the hip at a brokerage account. So the brokerage account and the IRA is one and the same. And what a self directed IRA is, is when the IRA itself becomes higher level. And then the top level of the whole thing is the IRA. Then the brokerage account is just one of the holding accounts under the IRA. And in addition to that brokerage account, you could own the house across the street in your IRA and that could be rented out and all the income that is paid in rent to your IRA as the owner of that house, goes right in there without taxation. Or let's say the house goes up in value. That gain, that appreciation, it's tax deferred, staying in your IRA. And the same is true, whether it's a house or any number of Bitcoin or any number of ounces of physical precious metals or tax liens or private equity or private debt or crowd funding or investing in startups or investing in private lending--any of that. I like to think of it as basically how to invest like a billionaire no matter who you are. It's kind of like, you know, alternative investments aren't just for billionaires anymore. And that's because of self directed IRA's. Self directed IRAs are where most of the American households wealth that is not in home equity is in retirement accounts. So we're the wealthiest nation in the world.
Jeff:
Most of the money is in home equity and retirement accounts. Retirement accounts is something that you can invest outside of what's crashing right now. So that's pretty exciting. And I wanted to give that intro because with the uncertainty, it's my belief that everybody should have a self directed IRA because we don't have enough information for it to be a smart bet to go all in on stocks and bonds right now. And not only that, there are actual structural issues. So when I go to sleep tonight, I am going to just hope and pray that Mark Cuban and Cathy Wood are right, that we're going to pull right out of this and It's gonna get better way quicker than a lot of people are thinking. I hope they're right, but I think they might just be spreading hope and trying to put a bandaid over you know, what is kind of like a mental health crisis that's brewing?
Rachel:
Well look, all love and respect to Mark Cuban and Cathy Wood, if I could, you know, sit at their feet and learn from them, I would be more than happy to do so. And Cathy's business is an investment firm that deals with stocks and bonds. Okay. That's what she makes her money on. And same with Mark Cuban, you know, he has said publicly that the majority of his portfolio, well at least it was a lot in tech stocks and Netflix and Amazon and things like that. So let's just also take with a grain of salt that that public pronouncement is because of their industries.
Jeff:
Yeah. Well in Mark's case, his persona is the shark tank, right? So in the shark tank, it's really all about the American dream and the American dream is meant to focus on the upward trajectory of growth and progress. And so this is a setback to growth and progress. And it's not really good for his overarching theme to get interrupted for more than a few months. So I think he's probably doing a little bit of wishful thinking and at this point in time, if a bunch of people are stuck sitting around feeling like their hands are tied behind their back, a message of hope is what they need.
Rachel:
Absolutely
Jeff:
Now in a few months, later this year, we're going to have some sort of reality to deal with. And it might not be what we wish it to be. It might be that things are worse. And the reason why when I go to talk about these things, it's not to an empty audience. The reason why there are people there listening to me is because I have studied this very extensively and not only is it about the assets of the stocks and bonds, but it's also about the structure of the market itself. And there's a real problem there in that there is something called re hypothecation where these financial institutions may have pledged your assets that are sitting in your account at their institution as collateral for their debt. And now that we're running into this crisis that is a debt crisis, it's a bond crisis, it's a stock crisis, it's a real estate crisis, it's a supply chain crisis. It's so many crises all in one that your assets if they're just in a brokerage account, have potentially five or six opportunities for a financial institution to go under and for your assets to go to their creditors.
Jeff:
Re hypothecation--I did a YouTube video about this back when we were predicting this crisis unfolding about six months ago. And re hypothecation is basically like, if you could go get multiple 100% mortgages on your house from multiple lenders. And so the real problem is if you stop paying your mortgage, then the other lenders can't go and get the asset and foreclose. So re hypothecation is something that is basically fraud for the common person and it's business as usual for the big financial institutions. So there's actual actual structural risk in the financial system, including all of the Wall Street companies, all the brokerage houses, there's systemic risk in there. And it's not just a bunch of bad people doing a bunch of bad things. It's also just the challenge of they were all trading papers and then all of a sudden computers came along and these stock indices and trading floors and platforms and markets didn't pause. They didn't stop in the 90s and say, no more stock market. We're going to need a couple of years to build a really nice computer system. They just started building a computer system and just started duct taping the old system to the new system. And for that reason, there are structural problems that have not yet come home to roost, enter coronavirus. So these dominoes falling could, you know, it could be that they're spaced out and the next domino falls and then the other ones don't get hit and Mark and Cathy are right. But it can also be that the next domino to fall hits the next domino. It could be that this financial crisis could worse than anyone we've ever seen.
Rachel:
Well, you talked about structural issues and I think systemic issues are also another item that needs to be discussed. Like for the bond market example, these corporate bonds and stock buybacks, that's something that, you know, even if the economy reopens and everyone's able somehow to get back to normal, there's nothing been discussed. I know Mark Cuban tweeted about it a couple times, but there's nothing that's been discussed to reconcile that problem or stop that problem from continuing, which has exacerbated this bubble that we're in, this mega bubble that we're in right now. So there are systemic issues too, that even if this does end up being a V bottom recovery somehow and we bounce back those same systemic and what you were saying, structural issues are still there from before.
Jeff:
Right. And we're not going to have a V bottom recovery of everything. It's obviously impossible that everything could go back to the way it was before coronavirus came along. In fact, even if it were possible, even if the truth was the Corona virus literally didn't exist, and everything that you've been seeing was just completely fake, which I know some people believe that. Let's just go with that for a second. Even if that were the case, how do you shut down a global economy that's never been shut down before? Never has there been this coordinated effort for all humans on earth, aside for maybe a couple of tribes in the Amazon or something, to just shelter in place. That's never happened before. So the idea that you could just turn it back on and press resume, unpause, is pretty ludicrous.
Jeff:
So I think that of V bottom recovery in all perspectives is 100% impossible. The question is just, you know, economically is there a way to escape just a massive set of dominoes falling? And the answer is, I don't know. When I talk about these structural issues, it's not because of certainty that I know that any one thing or another is going to happen. It's because you need to understand that the risk of the whole thing going under is actually real. It's clear and it's present. And the solution to avoiding massive loss for you and your family and your future is to diversify, is to diversify away the risk or to minimize that risk with these uncertainties. So how do you do that with a self directed IRA? Before we cover that, a quick word from our sponsors.
Speaker 2:
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Jeff:
Okay. We're back. We will talk more about the solo 401k in another episode. Today we're going to focus in on, you know, the solo 401k is something for entrepreneurs, contractors, freelancers; the self directed IRA is something for anyone and everyone. They're not mutually exclusive either. So the self directed IRA, I think the thing to understand is what are the different kinds of self directed IRAs. And there's basically three levels. One is kind of just a confusion and that is that a lot of times brokerage houses will say that they have a self directed IRA because they'll say, look, you've got your menu of stocks and bonds. You can direct which ones you want to go to. And it's, I guess, partially true when we say is that self directed? Yeah, you're choosing from the menu just like you self-direct what meal you want to have at a restaurant.
Jeff:
When we say self-directed, what we really mean is the ability to direct in anything that might be a good investment and is legal to invest in. And for that, I think that if you go to your brokerage house and any kind of self directed IRA they have there, it's essentially fake. It's not really self-directed. Self-Directed means expanded choices for various reasons regarding regulations. These brokerage houses have a lot of regulations specific to securities that they have to comply with. And so they're not really in a position to offer true self direction. So that's level one. And it's basically the same thing as the IRA that you already have. So it's not really one at all.
Jeff:
Level two is a self directed IRA account at a custodian. Now a self-directed custodian is one that is going to say, look, I'll hold alternative investments for you. If you want to invest in a piece of real estate, you can direct me to do it and then we'll go ahead and do the transaction and hold the real estate for the benefit of your IRA. Same thing for whatever other alternative investments. These are the ones that--any comments on that first off, Rachel?y.
Rachel:
No, you got it.
Jeff:
Okay. So let's talk about the pros and cons of a self directed IRA custodian account. One pro is that they're probably can have the lowest setup fee. They're going to have annual fees that may be flat or percentage. And so they mainly make their money off of annual fees and transaction fees. So they'll have the lowest setup fee, which means that it's going to seem to be the cheapest way to go as far as from day one. But how much the fees add up over time is just going to depend on the custodian.
Rachel:
Well, but I'm sure that there's some people that are thinking, can't I just have a free self directed IRA, like with my broker?
Jeff:
Yes. A lot of people will see that. But again that's that apples and oranges comparison because the broker will not enable you to invest directly in alternative investments. In fact, by definition, alternative investments are literally the ones that you cannot get from inside a brokerage account. You know, just to put it simply what you can get from inside a brokerage account are traditional investments and what you can only get by going outside of a brokerage account, are alternative investments. So when you start looking at who can help me get alternative investments in my IRA, the first option is that level two self directed IRA, which is a custodian.
Jeff:
Again, the pros are they might have a low setup fee. The cons are that their fees might add up, end up being being quite expensive over time, especially if there's percentage based fees. And the first thing to understand also about this custodian is they're an alternative to that brokerage account, but where in that brokerage account, you might have some sort of advisor who will give you recommendations about which stocks that are in the account that you can buy. At the self directed custodian level, they're not advisors and they're not active. They're not an active fiduciary. They're a passive fiduciary. So they're not going to tell you, you're not going to give you any input about your investments. They're just going to be there to serve as a middleman to process your transactions between you and whatever asset you choose to buy. They'll handle the money, they'll handle the asset, they'll process your paperwork.
Jeff:
So that's the first thing to understand. So now if you want to look at the cons, the cons are that there's kind of you know, low fees and good service are at odds with each other. Because when you go into your brokerage account and you buy a stock and press a button, guess what? No human had to do anything. No human reviewed it, no human processed it, it was all software. But when you go into alternative investments, like for example, you're buying real estate or anything else, most of those transactions, you know, they're not vanilla, they're not the stock market. So it has to be processed by not only a human, but depending on the investment, maybe a lot of humans. In that instance, you're either going to be paying fees to have it processed expediently incorrectly or you're going to be having, you know, low to no fees and you might be waiting a really long time and calling into a call center with a longer wait time than the coronavirus PPP loan at Chase right now or something like that, right? So that's, I would say the cons, and I think that in my experience this, these levels are sort of a progression of growth that the investor goes through. Every investor you know, looks around, sees the ads on TV, some of the ads positioned as financial news, and they're like, Oh, I needed some investments, therefore I need some stocks and bonds. And then they start there and they think that's the whole world. And then by the time you're listening to something like this, you start realizing, Oh, there's an entire other world and the stocks and bonds only represent a tiny fraction of the economy. A much larger fraction of the economy is real estate, private businesses, all of these other opportunities that are alternative investments. So then you go into the custodian account and in that experience, you then start to run into some of these limitations or these cons, slow processing or high fees.
Jeff:
It's kind of like one or the other. The other thing you might run into is, where your brokerage account is just going to say no, you can't buy a piece of real estate directly in our account. A self directed custodian is going to say, yes, you can buy a piece of real estate in our account, but it goes beyond real estate. There's these tax liens, there's Bitcoin, there's private businesses. And so the other thing is that different custodians have different policies on what they'll let you invest in. So when you go to a custodian, I consider it to be partially self-directed because you're now limited to buy those investments that that custodian understands. And so now these custodians are staffed with administrative people and now all of a sudden you're still, in a more flexible way, you are still subject to what are they tooled up to help you invest in?
Jeff:
Let me give a great example. I started recommending people take a look at holding a small amount of Bitcoin in their portfolio and by small amount, I mean a small allocation of their portfolio, in Bitcoin starting in April of 2013. That has turned out to be an amazing investment, unparalleled by just about anything else out there. That was a great thing to do at the time, but if you went to a self directed custodian in 2013 and said, let me get some Bitcoin, you wouldn't be able to. You only would be able to get some Bitcoin in your custodian account after it was already too late to capture the gains from that time period. Now I'm still bullish on Bitcoin. We'll talk more about that in other episodes and everything. The opportunity is not gone. But when you look out there and you look at these custodians, you have to ask yourselves where were they in 2013, because now the next time an alternative investment becomes a very good early asymmetric risk opportunity, I'm going to be getting told no by the custodians until after there's a certain amount of mainstream acceptance.
Jeff:
Another example might just be another con and not a lot of people run into this, but it is possible, is when these custodians are handling your transactions for the assets, they're also handling the transactions of tens of thousands of other people. And sometimes they mess up. Sometimes they wire the money to the wrong place. Sometimes the money disappears. And sometimes it takes a little time to figure that out. And then I would say just the biggest one is processing time.
Jeff:
We were talking to somebody just the other day. They've been trying to get their money out of one of these custodians to move it over to a different account for like three months.
Rachel:
Yeah. And they're calling and calling and.
Jeff:
They don't even answer their call anymore. It's like they blacklisted their phone number and they're a customer.
Rachel:
They're still charging them fees.
Jeff:
They're still charging them fees and I'm not going to say the name of the custodian because I don't want a lawsuit, but if you Google self directed IRA custodian, it's going to be one of the top, top results, one of the most highly promoted companies out there. So, on the other side of it, that's the experience with custodians, and I've got to say it's not the custodians fault. This is just a matter of reality. In reality, alternative investments are not all the same. They're not uniform like stocks and bonds. One piece of real estate isn't like another, and unlike stocks and bonds, if you're doing real estate, you've got a title company or a law firm that has to close it instead of just clicking and be like, bam, I got it in my account. And then you know, behind the scenes, maybe it takes two days T plus two to like actually settle. With real estate, the transaction can take weeks or months. Now you've got a lender involved, it's just there are complexities in the processing of these retirement accounts. So if you put a middleman in the place and say no, you process it, they've got all this liability if they do it wrong. So they have to do it very methodically and they have to do it very slowly and then they have to charge you money for doing it. And if you run into slow processing transactions denied or other problems, then the third level is what I call fully self-directed.
Jeff:
Now, not everybody makes it to this level because a lot of people hear the hype about self-directed retirement accounts and they go to level two and they think that's it. They run into the problems and they go, this is it. I'm not very excited about this. I don't think this is going to help me. And then so they go, Oh yeah, I did the self directed IRA thing, wasn't really too impressed. So a lot of people don't know, no, keep going. There's a next level and that next level is fully self-directed, which is often called having checkbook control. So that second level with a self directed IRA, you just need to find a custodian. You might search for something on Google, like self directed IRA custodian list. You would then look at that list, call some of the companies, pick one, open an account, and then subsequently have the experience and the limitations that all custodians have.
Jeff:
That third level would be in the space of a self directed IRA, what some people call a checkbook control IRA. And this is where the IRA custodian kind of settles into the background, and what you end up with is a checkbook with literally a checking account at a bank that has all of your retirement account money in it, and you're the signer on that checkbook account, and you're able to simply wire money, write checks to buy any investment. Then you're like a free agent in that you want a brokerage account? Great. Then you get a brokerage account. You are the authorized signer and transactor on that brokerage account. Oh, you want a cryptocurrency exchange account? Great. You are the authorized signer on that cryptocurrency exchange account. Oh, you want a Forex account? You want to do some trading? I mean, personally, I think that's kind of gambling, but Hey, if you want to do it, go open yourself a Forex account. You want to buy a piece of real estate, you write the check.
Jeff:
And so what ends up happening is the custodian is involved in the initial setup process of this kind of self directed IRA, and then after that, they're not involved in the actual transactions of the asset, so they're not going to slow anything down. They're not going to unnecessarily deny anything. They're not going to mix anything up. They're simply going to satisfy a legal requirement for the setup and then they're going to sit back in the background. They're going to ask for like a form to be filled out at the end of every year. They'll charge you a small nominal fee for that, called annual maintenance. But the day to day managing of the assets is actually done directly by you.
Rachel:
So you get to be in control.
Jeff:
Direct control.
Rachel:
And make decisions, right? Direct decisions and then execute on those decisions as fast as you want. So when you were talking about one of the cons of sort of the level two custodial, self directed IRA, sometimes clients will run into delays in trying to get their transactions closed. This is avoided with that checkbook control.
Jeff:
Right.
Rachel:
Self directed IRA plan.
Jeff:
Right because those are intermediary delays, right? So this would be like if you wanted to, you know, tell your friend something and then every time you weren't allowed to speak to your friend, but instead you had to talk to a middleman like the children's game called telephone. If you had to then say to the intermediary, go tell my friend let's have lunch at noon today. Right? Then you're at the mercy of how quickly and accurately are they going to go do that. And the whole point of the game telephone is if you have multiple intermediaries then it gets ridiculous because even though they might say it quickly and it passes from ear to ear, it will change. We all remember that game. If there were 50 intermediaries, you know, in a kindergarten classroom and you're playing telephone and you're saying to the person at the other end of the room and you're whispering every ear, meet me for lunch at noon. At the end, all of a sudden it's going to be something like,
Rachel:
I don't know what it would be like.
Jeff:
Yeah.
Rachel:
but it would not be the original message.
Jeff:
Yeah. It would be like, let's run away from school, or something like that. It normally has nothing to do with the original message.
Rachel:
That's what you would plan. As a kindergartener, that's the message you would come up with.
Jeff:
Yeah. Well, but in all seriousness, this is how it happens. It's like a copy of a copy of a copy that's not all the same. Now in reality, when there's only one intermediary, it doesn't become completely ridiculous. Like put this money in Bitcoin and then the custodian says, you know, something like invest in Iraqi dinar. Right? It's not going to be completely different. They're not going to be like, Oh, we flushed your money down the toilet, like you directed us. But it might be slower. And you know, in the case of meet me for lunch at noon, what if you tried to tell your friend, meet me for lunch today at noon--What if it takes the intermediary seven days to process that message? Well, they're not gonna make it to lunch today at noon. They're going to get the message a week later. Or in the case of these more slow custodians it could be several weeks later or months later.
Jeff:
By the way, even a custodian that is fast in normal times is going to have a problem coping during abnormal times, like what we live in right now. Right? So like out of all the custodians out there, the ones that already were set up to have people work from home, they're probably a little bit less shaken up in their operation right now that we're all working from home. The ones that weren't set up at all, where everyone had landlines and there was no VoIP and everyone worked from a desk, and we don't even know if your employees have the internet at home, you know, they're having a real problem.
Jeff:
Now, back to level three, there is no intermediary, there is no telephone. This is like if you want to tell your friend, meet me at lunch, you just call your friend or you just tap them on the shoulder and say, meet me at noon for lunch. So nothing's going to get lost in translation, nothing's going to get delayed, and you're going to be able to get the transaction done. So that's the pro. The other pro is that if you're doing the transaction yourself, nobody's going to charge you a fee for it. So if you're paying transaction fees, then you kind of have an incentive to minimize your transactions, which means you might not end up very diversified. If you're not paying transaction fees, then the decisions on what to invest in are solely made based on what do I want to invest in, what do I choose to invest in? So that's the pros. Any other pros you want to point out, Rachel?
Rachel:
I think you got em, yeah, quickness and total control.
Jeff:
Right. No matter what you want to invest in, you can invest in it. Now there are cons. The cons are that there are some rules that basically amount to that you can't go buy an investment that is being sold by a direct family member and that you can't do, generally, investments that aren't designed to be just a good investment, but you're just trying to help a friend out or something like that. So let's go back to the real estate example. If your friend is selling a piece of real estate right now, we're in a crisis and they bought this property for, you know, 400,000. But nobody's going to buy it right now and then you're going to step in and buy it for 400,000 when there's no other buyers at 400,000. Now you're probably overpaying. And if you do that with your self directed IRA, then what's going to happen is if you get audited, the IRS is going to say, Oh yeah, this is prohibited because this is a terrible investment and you overpaid for it and we know this is your best friend so you just helped your best friend out, which means you're not growing your IRA, which means we're not getting our taxes at the IRS.
Jeff:
So the rules to follow, known as prohibited transactions rules, are designed to make sure that you don't have a conflict of interest like a loved one on the other side of the transaction or like your own self. Like if your business that you own needs a loan, it would be prohibited to take your self directed IRA and write a check made out to your business and say, Oh yeah, here's that loan. Well that's prohibited.
Rachel:
Right. Your self directed IRA can't buy a house that you live in. Your sel-directedf IRA can't buy a house where your son is the general contractor doing the rehab? There's certain rules to follow.
Jeff:
R ight? So now the custodians are going to, backup to the level two--The custodians are going to try to sniff these out. And then they're going to tell you, Oh, we'll keep you safe. But if you read the fine print, they're going to still say that whether we process your transaction or not, if you ever break a rule, it's your fault, you're on the hook. So then it just kinda becomes, you know, from a legal perspective, the custodian has no responsibility to stop from breaking these rules. You have all the responsibility. If you break the rules, then you trigger taxes and penalties. So the custodian is going to just try to do a good thing and you know, stop you from breaking the rules, but not in a way where they have any responsibility to do so or pay the taxes and penalties if they mess up. So it's kind of the same at both levels.
Rachel:
It's just kind of like a false security blanket, right? I mean, I think some people are like, well, I'll set up a self directed IRA because the custodian will keep me safe or tell me if I'm making mistake and they'll probably do that the best that they can. But if they overlook something, if you execute on a transaction and you made a mistake anyway, too bad.
Jeff:
Yeah, it's like the TSA. It's security theater, right? So the TSA has no empirical evidence to have ever stopped any terrorism. But they make people feel safer because of the theater of it--Because like, well, geez, we're all putting up with this. It must be helping, right? Well, logically and empirically, no, we don't really have any evidence that it is. In fact, we have the opposite. When they get tested, all of the fake guns and bombs and everything make it through.
Rachel:
Yeah, they do a terrible job at those tests.
Jeff:
Right. But we don't have a choice-- you're going to get on an airplane. I mean your only choice is to get so rich, you can fly private. Other than that, deal with the TSA if you want to fly.
Rachel:
Right.
Jeff:
With self directed accounts, the security provided by Oh we'll, you know, check your transaction to see if you're breaking the rules is security theater. They're securing you against a prohibited transactions rule that if you break, you're not secured at all because they won't pay for it and you have to. So in my opinion, if you have a self directed IRA account, whether it's partially self directed at a custodian or fully self-directed with checkbook control, then you're the one on the hook. So if you're on the hook, you need to understand the rules. The rules themselves are not that complicated. In the case of our clients, we have a tool called a prohibited transactions checker. I'm not going to like promote that or try to sell that here, but just know that, because we do have Nabers Group clients listening, just know that clients of ours have a tool that involves actually translating the law into a two minute piece of software that tells you whether or not there's a red flag of a potential transaction. So it's not a replacement for an attorney, but I think the truth is it's better than most attorneys because it's software. It's not going to have a stressful day and miss some sleep and overlook something. And of course we worked with the top attorneys in the world to develop the software.
Jeff:
If you want legal advice, go get legal advice from an attorney. But understand legal advice can still be wrong and flawed and you can still be on the hook for it. With this piece of software it's just designed to take a solvable problem and solve it in the fastest, cheapest, and easiest and most reliable way possible. So the real prohibited transactions issue is completely solvable. You can make it. So there is nearly zero risk that you're going to do a prohibited transaction. So I think you need this software, whether you have a custodian account or a fully fully self-directed checkbook control account. Any other cons? I mean I want to be transparent here. Let's dig it up on both sides.
Rachel:
Yeah, I guess one, I don't know if I would necessarily call it a con, but you have to be willing to accept the responsibility of keeping track of the books or the records for your self directed IRA. So if you have a level two self directed IRA plan, then every time you do a transaction, it's going to be recorded on a little line item in a spreadsheet that'll get kicked out as a monthly statement to you from your custodian. If you have this full checkbook control self directed IRA, you're going to play that role. So you just need to make sure that you're keeping a spreadsheet or you're having your books somewhere. So again, I don't know if that's necessarily a con, but you need to be responsible.
Jeff:
Yeah. And let's talk about where the rubber really meets the road on that. Right? So there's no law or regulation that demands that your books are kept to some level at all. You simply are going to get in trouble if somebody goes, so where did the money go out of that account that you have the checkbook for? And if you're just like, Hmm, and you have a brand new jet ski in your backyard and you can't even prove where the money went.
Rachel:
Definitely not that jet ski officer.
Jeff:
Yeah, it went to NOT the jet ski. Then you're gonna have a problem. But you're going to have a problem if you do that with a custodian too. In fact there's a custodian that got in trouble in the early two thousands for processing a jet ski transaction. I didn't make that up. So they took their IRA, they told the custodian, okay, give it to Bob's jet skis LLC. And they just went, okay. And he got the jet ski and then later there was like a lawsuit involved. Right.
Jeff:
But the point is, you want to keep your books just to keep your books and, and I don't mean like methodical, like impressive things where you could put, you know, a board together and give PowerPoint presentations to each other and slap each other on the back about synergy. And otherwise.
Rachel:
But you're playing all the board member roles because it's just your own self-directed IRA, so you're like running around where you're patting yourself at different.
Jeff:
Or your pets--you could put your cat in one chair and your dog and another chair. And you can be like, look at these spreadsheets.
Rachel:
I'll thank you to refer to the cat by his rightful title, which is the chief investment officer.
Jeff:
Right. Exactly. So hang on. I just want to make a point about that. When we say keep the books there, it's not because there's a law or regulation saying like, these are the standards. It's because you just need to be able to prove what transactions happened. So if you get audited by the IRS and you have no books, but you've just saved your bank statements and you haven't done anything to break any rules, they're not going to be like, man, your QuickBooks game is off. That's it. We're taxing you. They're just going to have to like look through the bank statements and see where the money went so that you can prove these were made for investments--all the way up to if your books are kept, you know, very stellarly, then then that's even better. But it's not, there's not like a specific accounting requirement.
Rachel:
You brought up something that's really important that I think that we also need to address too. I've had people ask me over the years, but if I am taking my money out of a level one IRA, I'm going to a self directed IRA custodian or I'm doing the full checkbook control, does that increase my chances of an audit?
Jeff:
No.
Rachel:
Not at all. There's zero evidence.
Jeff:
No, we've never seen it once. We've had clients who are audited and everything turned out fine. But you know, we've been doing this since 2003 and there has never been within our firm, or any other firms that we talk to and are friendly with, any evidence of a higher percentage of audits occurring at all. So there's zero connection there.
Rachel:
Yeah, I think that's important for people to understand for peace of mind, because sometimes it can feel like a little bit of a leap of faith, you know, when you're taking control of your own retirement funds or taking control of your financial future. That's certainly not what we're taught in school, empowered in that way.
Jeff:
Now let's spill the beans. How do you get this cool checkbook that has your retirement funds in it? You know, we don't have the boxes and arrows. This is an audio podcast, so we'll keep this brief. It's very simple actually. You just have a newly created special purpose L L C, which is limited liability company. So a limited liability company is created through our document preparation and that establishes this LLC. It has its own tax ID number, it'll get its own bank account. Should you want it, it will get its own brokerage account, its own cryptocurrency exchange account, and and it will be legally established. And then you are the manager of that LLC. Now as manager, you are running the LLC--you're managing the funds, managing the assets, you're doing the transactions directly. You're being your own custodian for the retirement account. Now that LLC is actually owned by your IRA that is held at one of those self directed IRA custodians. So the process is you open, not just at any self directed IRA custodian, you have to open out at a self directed IRA custodian that is friendly to the laws, right? So the laws are clear that this IRA plus LLC structure is legal. It was declared legal by an advisory opinion ruling in Washington DC in 1989.
Jeff:
Back then it was kind of hiding away in archives of microfiche. So the IRS took someone to court in 1995, a guy named Swanson, and Swanson was doing this IRA LLC thing. And the IRS said, Whoa, Whoa, Whoa, Whoa. You're handling your own retirement funds. This, this seems prohibited. We want to charge you some taxes. He said, nah, they went to court and Swanson won. And the court-- something the court rarely does when IRS is the plaintiff is they rarely say, and the IRS must pay the defendant's legal fees. Okay. So very rarely does that happen. But in the case of this fully self directed IRA plus LLC strategy, the court said Swanson was right, Swanson was legally compliant, Swanson does not need to pay any taxes or any penalties or cease doing this self directed IRA. And by the way, IRS, you pay their legal fees. So what that means--and I've been told this with every attorney I've asked to give me the review of this Swanson case--what this means is the courts said, and don't bring this issue up ever again, IRS. And the IRS wants money, they want to go out there and do cases where they get money, not cases where they're paying legal fees for someone that the court doesn't ever want to see this case again. Right?
Jeff:
So it was legalized in 1989. It was the nail in the coffin of skepticism around the legitimacy of the strategy was in 1995 and in 2003, we hired the best attorney in the world for this specific area, a lady named Deborah Buchanan who has since passed away, rest in peace. And she helped us to take these pieces and assemble them together into a process where anyone in all 50 States of the U S, even Americans living abroad, can simply set up a fully self directed IRA with checkbook control. And it's that LLC component that actually becomes the command center. So if you've ever had an LLC before, you know the LLC has a name and then you just go out and do business in the name of that LLC. You own assets in the name of it, you do transactions in the name of it, somebody needs to pay that LLC, they're paying it to the name of that LLC. Now this LLC, though, is special in that it's created specifically for the management of those IRA funds.
Rachel:
So can I just put my IRA money in an LLC that I already have? I've already got an LLC, I'll just use that one.
Jeff:
No, it has to be newly formed because that set of rules known as prohibited transactions requires that in order to be compliant with that has to be a newly formed LLC. And if you just go down to your local service provider or you know, legal zoom or something and say, hey, give me an LLC, then the process that they use is going to be for a general purpose LLC, which is normally just like, it's going to be owned by a person. This is a special purpose LLC because it's specifically designed to be owned by an IRA and it is specifically designed to be compliant with all of those processes.
Jeff:
How it's set up is going to play a big role in your compliance. It needs to be set up compliantly. And that's what we extensively have worked with for 15 plus years with the nation's top attorneys to make sure that we're staying on top of that. So at the end of the day, what you have is a checkbook in the name of an LLC for which you're the manager and you can go out there and legally invest in anything that you want. You can use our software to check against prohibited transactions and then you can go out and kind of, bringing things back around full circle, you can look at what's going on here and say, yeah, there's uncertainty. That's challenging, but what are we going to do about it? What do we do with this uncertainty? Well, my message is you diversify. Okay?
Jeff:
If you still want to hold some stocks and bonds and have some exposure there in the case of this V bottom recovery that so many are hopeful for, then get your exposure there. But with your IRA, instead of leaving all of your money in that brokerage account, then you can actually roll it over into this fully self directed IRA into your checkbook. And then you can open a brokerage account that is going to actually give you access to more stocks and bonds than the original IRA would. So, when you open a brokerage account, and the brokerage account isn't tied to the IRA at the hip, then you actually get a more powerful brokerage account. You get more investment options there. You can also have a cryptocurrency account. You can also leave money sitting in a bank account that is FDIC insured. Now there are problems with the FDIC program, but it is a level of insurance that your brokerage account cannot get. Also, what happens is when people try to move money out of a brokerage account, they learn more about their broker.
Jeff:
Usually there's some sort of resistance because the broker makes money by the money staying there. And so sometimes they will try to talk you out of it, try to make you feel bad for even thinking about going beyond stocks and bonds confuse you, tell you that it's illegal when it's provably not illegal. And so a lot of times rather than trying to earn your business to come back around with that checkbook account to have some of the money continue to be at the broker, they will pull out a whole bag of tricks to try to keep you there. It's not true all the time. A lot of brokers would just be like, fine and they'll roll it out. But some might create some resistance and throw up some roadblocks. But, once you get this set up, you can have that brokerage account. You can go back to the same advisor if you want with the portion that you want to leave in traditional assets. You can have that FDIC insured bank account. You can have multiple FDIC insured bank accounts. So if you have $1 million that you want to keep in cash right now inside your IRA and you want to at least make use of the FDIC protection for whatever it's worth, then you could open four bank accounts each with 250,000 in them. You can also then in that case with your cash position, be diversified against banking failures. So if banks turn out to be some of the next dominoes and one bank goes out of business and another doesn't, and you've got four bank accounts, you've got a better chance at not losing all of your money due to concentration risk.
Jeff:
Then let's say you find a point where you go, you know, I think the real estate market has hit a bottom. Or maybe you find a point where someone brings you a real estate deal that is just a sweetheart deal. You can pull out that checkbook and you can sign the real estate contract to do the deal, put it in the name of the LLC from the get go. You write the earnest money check right out of the LLC checkbook, and when it comes time to close, you're not waiting for some intermediary that might be MIA or leave you on hold music for 90 minutes. You just close, you just get your FedEx packet and you sign everything yourself as the manager of the LLC. And this is something that hundreds of thousands of people have been doing for decades. There is a clear way to do this that is compliant, that is easy, and that gives you the opportunity to invest like a billionaire.
Jeff:
You know, I've gone through all the research. The thing that has happened over the last 10 years is that wealthy people have been shrinking the pie piece of their portfolio that is traditional investments. Wealthy people everywhere. You know, a person with $100 million or more a billionaire, they almost all have something called a family office where there's a team of people who do nothing but manage their money. And these family offices spend a disproportionately small amount of their time, attention and energy investing in stocks and bonds where they feel like it's a difficult game to win. They just get some exposure. One way or another. The most of their attention and energy is on alternative investments. So they're investing in real estate deals. They're investing in cryptocurrencies, they're investing in private equity, private debt, hedge funds, all of the things that a family office can invest in, you can invest in your self directed IRA as if your IRA were your own personal hedge fund or your own family office at your level of wealth that you're at. So that's kind of a high level overview of the self directed IRA. Your transaction costs get completely wiped out. So then more of the cost.
Rachel:
With a fully self directed IRA.
Jeff:
Yes,the fully self directed IRA makes it so that there's nobody you have to pay to follow your directions because you just do your directions yourself. Just like you would talk to your friends rather than hire a messenger to deliver a message to your friends or family or spouse or pets every time you want to say something to them. Right? So the transaction fees are eliminated. There is more work done to set up this platform that can be more powerful for you, so you'll have a bigger setup fee. You know, usually your setup fee at a self directed IRA custodian is gonna be something like $50, maybe. But then over the next 10 years, you should expect to pay thousands or tens of thousands of dollars to them, or hundreds of thousands depending on the size of your account.
Jeff:
With the fully self-directed account. It used to cost like $5,000 to set up. Now it's under a thousand. And then the ongoing costs are also minimized because the activity of the transactions you're handling yourself. So anything you want to bring up. You talk to people all the time about this. What questions do people usually have that we can kind of cover in FAQ?
Rachel:
What about, I get a lot of people asking me if they can, if they already own real estate, they love the idea of putting real estate into something like a self directed IRA. Can they just transfer a property that they already own so that now it's owned by the IRA?
Jeff:
No. Because if they already own the property, then the IRA buying the property from them would be a direct transaction between their IRA and themselves. And the same is true if they own the property in an LLC or a trust. If they already own the property, then that's one of those prohibited things. So if you know, for our clients who use our software, then they go in and they answer a few questions and the software says red flag, that's prohibited. Don't do it.
Rachel:
Sure. I guess another question would be how long does it take to get it set up and going?
Jeff:
So the setup of the structure itself takes a day or two. The transferring of existing funds from preexisting retirement accounts over, happens at the speed of the institution that's sending the money. Right? So back when we started doing this like 15, 16 years ago, that sometimes could take many weeks because the Wall Street firms were really unfamiliar with who are these that we're sending this money to? And they had to kind of learn the process. Now it, in many cases, just takes a few days. It could still take a couple of weeks if you are currently working with a fairly slow institution. But when you add that together, the whole process I would say takes on average one week.
Rachel:
Yeah, that's great. I mean, you've covered what you can invest in. There's no increased audit risk for the fully self directed IRA plus LLC. It must be a newly formed LLC. You can't transfer personally owned assets into the IRA plus LLC. I think that covers a lot of it. You know, the fully self directed IRA plus LLC can also be done with a traditional or a Roth IRA structure. So you can use either
Jeff:
Yeah, exactly, so you can have a fully self-directed traditional and a fully self-directed Roth. And if your spouse a retirement money, he or she can also have their own IRA converted over to fully self-directed. And so one thing I really want to point out here is this is kind of like breaking your IRA or 401k money out of jail. The old way of thinking about retirement accounts is you open a little account at wherever in order to just put that amount of money in that thing. But what we're learning here in the Corona virus crisis is there are bottlenecks everywhere now. There are so many companies that are currently taking weeks to respond to support tickets. There are so many companies out there that there is no amount of time you can wait on hold to get through to a person just because the things that people need to deal with here in this crisis, are multiplied. And the number of people that they have efficiently working from home to answer your calls and respond, your emails are diminished. So we're seeing in this crisis where the points of fragility are. And what a fully self directed IRA does is it eliminates those points of fragility. We go through those points in the setup process, so that bottleneck is again, that custodian that we're going to work with on your behalf. And then the sending custodian that currently has the money and assets. We're going to work through those points of potential bottlenecks, delays and fragileness. The other side of that process that say takes an average of one week, then have those bypassed for the management of the assets.
Jeff:
The other thing too is, you know, the government is doing all kinds of wild and crazy things right now. I mean, like pretty much everything that happens every week in terms of economic policies these days is something that we previously thought would never happen ever. So there's one thing in particular that a lot of people are worried about and that is the government nationalization or confiscation of retirement account assets and the fully self directed IRA structure really protects you against that because, let's say you have your diversified assets and they're all held at a custodian. The custodian is actually in possession of those assets. They have custody of those assets and they are chartered by a state or a federal government regulatory body. So if the government all of a sudden, let's say they lose control of interest rates over at the fed and government bond interest rates shoot through the roof. Well the government can't even afford to pay the interest payments, let alone the principal and you know, let's say they default on those bonds. Well, who's going to loan the government money if they can't repay?
Rachel:
No one.
Jeff:
No one. So then the government goes into nationalization and confiscation mode, which is what every government in history does in a crisis when their back's against the wall and they have to. So when they go into confiscate assets, like we said, the average household has the top two places they have money are home equity, which is somewhat going to get wiped out in this crisis. As we covered on our YouTube video a week or two ago about what happens to real estate in this crisis. And then there's retirement funds. So then it becomes all eyes on retirement funds. This is tens of trillions of dollars. That's just kind of sitting there, locked away in a vault at these custodians. And the custodians' existence is regulated by the very government that might need to come in and take those assets in a crisis if they have no other alternative funding source.
Rachel:
Are you also saying that with something like a fully self directed IRA, you have a bit of protection against a potential nationalization because it's harder to get to your assets. It's harder to find them?
Jeff:
Yeah. Great question
Rachel:
They don't just have to sweep into a brokerage account or something?
Jeff:
So if you have the first type of self directed IRA, what you really just have is a vanilla IRA at your brokerage house. Okay? So if the government wants to confiscate that, partially or wholly, in this severe crisis scenario that we could head into, then they're just going to go to the brokerage house and say, give me that. And the brokerage house again is gonna--their charter basically says, they're chartered from the people that are saying gimme that. So when the people say gimme that they have to. The partially self-directed retirement account where the assets are held directly at the custodian--same thing. They're in most cases, a trust company, chartered by the government. The government comes in and says, here's your orders. Hand over these assets. They have to do it. Their very existence says they have to do it because they're regulated by the government as a trust company that handles retirement funds. Okay?
Jeff:
In the fully self-directed retirement account, these assets are held by an LLC. The LLC is not overtly clearly--like, let's say your LLC owns a property. Let's say you get a sweetheart deal on a distress seller who needs to get rid of a piece of real estate. You buy the real estate for pennies on the dollar. It's an amazing investment. Let's say you put 500,000 into something, it's really worth 5 million longterm. So now you've got this $5 million asset and the government is going to say, all right, let's go to where the accounts are held. They're going to go to the trust companies and say hand over those retirement accounts. Your LLC is not titled in the name of the trust company. So first off, if anybody's looking at the courthouse to say, who owns this property? The answer is this LLC. So it's not showing up at the point of titling and ownership as a retirement account asset. And if they go to the trust company that has the IRA that owns your LLC, the trust company itself doesn't have possession of anything but a piece of paper that is the LLC ownership certificate. So the LLC ownership certificate is just a middleman instrument. So now instead of there being a middleman between you and your assets, there's a middleman between your assets and the government. And that middleman is you as manager of the LLC.
Jeff:
So the only person that can hand your assets over to the government is you. Now, I'm not suggesting that anybody does anything illegal or that this is something that helps people who want to do anything illegal. We're simply talking about asset protection. And so I have no idea the details of what a retirement account nationalization or confiscation would look like. But you're in control. Like in that scenario, if we did have a law that was passed that nationalized retirement accounts, you know, you could go to an attorney, we would be putting out information after going to our attorneys and we would know what our options are. The options for people who don't have a fully self directed IRA are nothing. Whatever the government says goes. The options as the manager of the LLC for a fully self directed IRA, your options are probably like you could make a distribution and pay some taxes but not lose all the assets.
Jeff:
Who knows? We'd have to see the way the law is written. But before such a law would be written, you have a choice right now to decide who has direct legal control, possession, and custody of your life savings and assets. And in the case of the retirement account portion, I think the answer should be you. You are your own custodian. And this makes it so that you can defend yourself and you can legally defend yourself. You can take a look at every step of the way of what can I legally invest in? Well, don't break any laws, but go out and invest in alternative assets. Okay, they're nationalized retirement accounts. What can I legally do? Well, you can consult with the attorneys and see what your options are. But what this does is it gives you options. It gives you a say in your own financial future.
Jeff:
I think that's what people should be doing. I think everyone should have self-directed, fully directed IRA. And I gotta say one thing. And I have friends who own custodian companies and they do a great job. There's nothing wrong with custodians. You know, this viewpoint that we're sharing here in this education is simply the reason why we decided to structure ourselves the way that we structured. We would make a lot more money if we operated as a custodian, but we think that there are plenty of custodians already out there. And as a custodian we wouldn't be able to do as much for our clients. And we think that, for the person for the individual account holder, it's better to have a fully self directed IRA for all the reasons that we discussed. For the business owner that has a financial services company, it would be better to have a custodian. But what we've done is choose to have a less profitable business model that is going to give a better value solution to the customer.
Jeff:
Anything else before we wrap up?
Rachel:
No, I think that was great.
Jeff:
Cool. All right, so just to kind of recap, I am not saying the sky is going to fall or that we're going to have a V bottom recovery. I think, again, going back to like the Mark Cuban and Cathy Wood thing we talked about, they're not saying, they're not declaring, we know that we're going to have this V bottom recovery. They just think that's the most likely outcome. And then you have, but also keep in mind these are people who didn't really see this coming. You know, they basically think that the Corona virus is the main thing that's going on right now. The other side of the spectrum, you have people who have been saying that any time something in the real world comes along and creates a hiccup for this bubble economy, we're going to have a real problem. The bubble's going to pop. I lean more towards that because I do see these bubble elements in the problems in the economy. It doesn't mean that the dominoes are going to keep falling until everything has just completely failed. But I do think it's a little bit more likely that there's going to be a deepening of this crisis and that there is going to be a recession and that it could possibly turn into a depression. And I could be wrong about that because these are just the probabilities. Faced with these probabilities, I think you'd have to be crazy to have all of your chips on the V bottom recovery, and that's what conventional financial wisdom tells you right now. It tells you the stock market always goes up 8% per year, yada, yada, yada. The problem is the last 20 years of the stock market going up by an average of 8% per year or more involved a bubble--involved not genuine economic activity, but instead financial engineering.
Jeff:
So I think that the days of 8% legitimate, honestly inflation adjusted growth of the stock market are far behind us. I think those days died in the late nineties and now we have a situation where not only is it not a zero probability that things could get worse and potentially never even go back to normal economically speaking, but that's the more likely scenario.
Jeff:
Now we have people surely who are going here, here and preaching to the choir that are listening. We also probably have people that are just kind of being introduced to these concepts and think, Oh wow, I never really thought about that. And I think the main thing is no matter where you are in that spectrum, it doesn't make sense to go all in on some sort of magical recovery that nobody can explain why it's definitely gonna happen. We don't even know how this virus works. We don't even know how many people have this virus. The only thing we're able to accurately track is how many people have died from the virus and how many more people than usual are currently dying with miscellaneous causes. Like right now, people in Italy are dying outside of the home at a higher rate and we're not testing them necessarily. And so we just really have accurate information about deaths and something scary and bad is going on with these deaths from the virus and unaccounted deaths. And so we're in the middle of this thing and we don't really know what to do. And my messages diversify. Diversify with what you have, and this doesn't just apply to retirement accounts. Diversify with what you have in any ownership structure. If it happens to involve some retirement funds, just take these tax benefits of the retirement funds and use them to your advantage.
Jeff:
So let us know any questions that you have for future podcasts. You can go to self directed life.com. Make sure you subscribe. And if you love the podcast, then tell us on iTunes and Google and give us a five star review. Also, on our website, self-directed life.com, you can click on leave a voice message. Then you could hear yourself featured in the next podcast episode asking your question or submitting your request for what topics you want covered. And when it comes to self directed IRAs, we will go as deep as you want to on it. So if you want to know what makes more sense, is it Roth, is it traditional? When, when do I do what? Let's talk about the asset, how you can construct a portfolio. What are you guys doing? Whatever you want to know, just let us know over at self-directed life. That's it for today. Have a great one.