Five Secrets of Successful Investors (the Self Directed IRA Appendix)

Five Secrets of Successful Investors (the Self Directed IRA Appendix)

Multitrillion asset management firm Blackrock had an interesting post on the Five Secrets of Successful Investors.

We suggest you read the post it its entirety. The rules can be boiled down to:

#1 – “Know what you own and why you own it.”

Iit can’t get much clearer than that. Smart investors tell you why they own a particular asset before buying it. For example, a self directed IRA investor may desire to “protect my purchasing power against dramatic inflation.” Owning real estate directly in your IRA is an appropriate holding in that case.#2 – “Prepare for jumpy markets.”

Market volatility has been low. We’d argue too low. Thus investors have been lulled into a false sense of comfort with many assets like bonds and stocks. Does this mean you should sell all of your holdings now? Of course not.  But there are ways to manage volatility and losses when they occur (and they will). One particular strategy is diversification. Holding commodities and real estate have so called “diversification benefits.” Real estate traditionally returns less than stocks, but it also does not fall as dramatically when markets turn soft.despair-513529_1280

My portfolio did what?


#3 – “Diversify.”

Are your investments truly diversified? For many people, the surprising answer is a resounding “NO!”  Successful investors like David Swensen have long advocated real estate (in the form of REITs) as a core holding for a properly allocated investment portfolio, to minimize losses during market downturns and the overall riskiness (and volatility) of portfolio returns. We subscribe to Swensen’s asset allocation philosophies, and believe that direct investment in real estate can offer significant benefits to individuals’ retirement portfolios.

#4 – “Rethink the safety of cash.”

We like some amount of cash, as a buffer to personal financial emergencies and other unforeseen expenditures. Could some of that cash be used to generate meaningful return and lower the risk of your retirement portfolio through a self directed IRA? Absolutely, we’d argue.

#5 – “Don’t set it and forget it.”

Did you expect to hold 20% of your portfolio in real estate, and lo and behold, because of appreciation, your portfolio is now 50% real estate? Time to rebalance the portfolio. Do you currently own, like most Americans, around half of your retirement funds in stocks? This may be too much. If for example you bought a property worth $50,000 and is now worth $150,000, does a 3x return on your investment trigger a sale?  Have you not given this a passing thought? You should. Selling successful positions merits consideration. Anytime.

We advise you to perform your due diligence and consider all these sensible points when deciding on retirement investing.

Good luck.

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