Saturday, October 18, 2014

IRA Services Trust Company: Eric's In The House

I’d like to extend a ‘thank you’ to Carlos for the opportunity to introduce his readers to the idea of self-directed IRAs. 

There’s a whole world out there – and I’ve always had diverse interests, pursuing career paths in several different directions.  These include music (performing and recording jazz and folk styles from around the world), and education (international studies, foreign languages and ethnomusicology).  Sometimes it seems I’ve spent my entire life exploring all of them, wherever my tastes or curiosity has led me.  I was already no longer a youngster when I discovered my third career direction: investments (all kinds, but increasingly alternative investments).

My introduction to investing came by surprise when I took a customer-facing position with the global mutual fund powerhouse, Franklin Templeton, in the ‘90s.  In studying to obtain my securities license, and then in serving clients through my role with Franklin’s Fund Information department, I had a surprise revelation – an ‘aha’ moment: investing is really interesting.  Everything about interest compounding and total return, and how securities and especially mutual funds work, became fascinating to me, and remain so.  I began to study a bit about portfolio theory and portfolio diversification, and how it was that mutual funds made up their portfolios.  Portfolio theory proceeds from the observation that different types of investments perform differently based on conditions in the larger environment, or economy.  Therefore one could use these concepts as a matrix to balance their investment goals and hopes on the one hand, with their tolerance for risk and volatility on the other. 

Later, I seized the opportunity to advance into the brokerage world, joining the staff at a super-affluent branch of Charles Schwab.  I acquired further securities industry licensing which enabled me to transact securities and provide portfolio advice to clients face to face.  But what I really loved was speaking in public on investment topics.  I would deliver free seminars on portfolio diversification after hours at the branch. 

The most poignant realization begotten from my start in the investment world, then, was not only how interesting investing is, but more importantly how important it is for everyone to do.  In other words, to invest, to have a plan, and to acquire increasing skill at investing is crucial to developing one’s financial health over time.  Or seen from the reverse angle: the failure to invest and to continue doing so, will almost surely handicap a person, going forward. 

The bottom line became clear enough, soon enough: we all must give some attention to building a nest egg.  The IRA (Individual Retirement Arrangement) is one of the most obvious tools to build one’s retirement nest egg.  The IRA allows you to grow that nest egg while deferring taxes (none of the profits or earnings enjoyed within the account incur taxes, but only the money that’s withdrawn from the account, especially if it’s prior to retirement age).  The Roth IRA is a slightly newer variation, designed to allow account-holders to take the funds tax-free once in retirement (or at least once they’ve held them in the Roth IRA for 5 years or more, and are over the age of 59 ½).  These increased tax benefits make the Roth IRA an especially powerful tool for building wealth over time.

Some years ago, my investment interests and research had outgrown the world of stocks, bonds and mutual funds, to extend into the territory of ‘alternative investments’ (investments not based on stocks or bonds).  Alternative (or ‘non-standard’) assets are those which banks and brokerages, and the IRA custodians that are housed at them, cannot or will not handle.  These assets behave differently from cash or CDs, differently from the stock and bond markets, and are out of the area of expertise of banks and brokerages.  In fact, those institutions seem to disapprove or eschew them (hence the terms like ‘non-standard).  But as I’d discovered already, a portfolio would benefit from true diversification by the inclusion of certain of these assets, for the very reason that they perform differently from stocks and bonds, etc.

I had become attracted to precious metals (coins or bars made of pure gold and silver) for their intrinsic and lasting value, independent of credit or the value of paper money.  Another ‘alternative investment’ area is real estate, which offers a variety of ways to benefit, either from the appreciation of land or property over time, but also from the income generated from renting or leasing it to others.  The category of ‘non-standard’ investments also includes shares of private companies or start-ups, oil and gas rights or royalties, equipment leases, shares of specialty farms, etc.

The Internal Revenue Service -- who make the laws regarding what can and can’t be invested in with a retirement account -- permit these investments!   But none of them can be invested in directly through Franklin or Schwab, and neither can they be investments in an IRA or Roth IRA administered by them or any of their peers--- and never mind that the Individual Retirement Arrangement already permits account-holders to self-direct.  No, this sort of thing requires a “Self-Directed IRA, ” since the asset choices are simply limited quite severely by your standard IRA custodian (i.e., one associated with a bank, brokerage or mutual fund company).  It turns out there have been Self-Directed IRA Custodians pretty much all along, existing to make it possible for all investors to gain this truer, fuller diversification.  So over the last 6 years, I have been assisting clients who self-direct their IRAs and Roth IRAs into a range of ‘alternative assets,’ and it’s where I’ve held my retirement accounts for those and other reasons.

I’m proud to be currently representing one of the most experienced and user-friendly firms: IRA Services Trust Company.   Located right here in the S.F. Bay Area where I grew up, IRA Services has engaged me in a variety of duties, including training, marketing, and business development outreaches.  But I especially enjoy serving as a sort of account manager or liaison for certain companies who provide special alternative investments for their clients to make in their self-directed IRA or Roth IRA. 

Among our clients, there are many who hold real estate outright, others who hold interests in mortgages on property, and then are those invested in REITs (Real Estate Investment Trusts) – a sort of mutual fund owning properties rather than stocks.  Rich-Uncles offers a REIT which is not difficult to understand, seeking to benefit from the stable income produced by high-quality commercial properties.  In other words, their REIT owns several properties in really good locations which it leases to the best businesses on fairly long-term deals – so in effect, it provides its shareholders with an attractive way to own ‘a piece of the buildings.’  Self-directed IRA or Roth IRA investors receive the income dividends posted to their accounts every three months, where they can accumulate, deferring the taxes until the future.  And those dividends can automatically re-invest to purchase more shares each quarter.  Now there’s the beauty of compounding, and of total return, working for you!


Disclaimer: Neither Eric Golub nor IRA Services Trust Company endorses any investment or provides any investment advice about your investments. 

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