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Marty and Max: Is it game over for your investments?

| November 3, 2023 1:00 AM

Sydney Harris once said, “An idealist believes the short run doesn’t count. A cynic believes the long run doesn’t matter. A realist believes that what is done or left undone in the short run determines the long run.” 

On one of my many business trips to Las Vegas, I was asked if I gambled. My reply was “Absolutely yes. I have a 401K comprised mostly of stocks and bonds. My entire retirement is a gamble.” 

Let’s take a stroll down memory lane.  The stock market crashed in 1929, 1937, 1962, 1987, 1989, 1990, 2007, 2008, 2010, 2015, and 2020.

In 1929 a selling panic began, and on Oct. 28, the Dow declined approximately 13%. On Black Tuesday, the market dropped again by nearly 12%. The crash lasted until 1932, resulting in the Great Depression, a time in which stocks lost nearly 90% of their value. The Dow didn't fully recover until 1954.

On Oct. 19, 1987, Black Monday, the Dow lost over $500 billion after dropping 22.6%.

What caused this? Our government disclosed a larger-than-expected trade deficit and the dollar fell in value, undermining investor confidence, that created volatility in the markets. Does this sound familiar?  This very much resembles what is going on today.

On Sept. 29, 2008, the stock market fell 777.68 points. It was at the time the biggest point drop in history. The immediate cause of the market crash was the failure of our government to provide the bank bailout. 

Most folks are happy if their portfolio increases by 5-10 percent per year. I work with large real estate investors who won’t consider an investment unless they can earn a minimum of 30% in a short period of time.  Why can’t everyone accomplish this? Even when your returns exceed expectations, your fees on your portfolio can have a substantial impact on your retirement. Most folks don’t account for the fees. 

According to the financial best-seller, Master The Game, “401(k) providers bury their fees deep within long and difficult-to-understand documents, effectively keeping their customers in the dark. But what the majority of Americans don't realize is that an increase in 1% in fees will cost you 10 years in retirement income”!

If we woke up tomorrow and the stock market crashed, how would this impact your retirement? Real estate continues to increase in value. Most folks don’t know they can move all or part of their 401k to purchase real estate as an investment. Many years ago Nintendo’s video game Super Mario was a huge hit.  In one part of the game, Mario is on a platform that is going down, and he must jump onto the platform that is going up to snatch the gold coins. If you have a 401k in a market that you believe is going down, you can legally jump to a platform that is going up such as gold or real estate with a Self-Directed IRA.

A Self-Directed IRA is an individual retirement account that gives you the control to invest in a broader range of assets. In a traditional IRA, your custodian (bank or brokerage firm) limits your investments. With a Self-Directed IRA, your custodians are responsible for compliance with IRS rules and regulations and yes there are fees. 

IRS Self-Directed IRAs do not limit what that IRA may invest in, but rather who that IRA may transact with. It is OK to invest if you have found an outstanding property from a friend, however, you may not purchase property from a direct family member. The Employee Retirement Income Security Act (ERISA)  incorporated prohibited transaction rules to ensure and prevent folks from abusing retirement funds. Before investing, contact a professional and know all the rules. 

No one can predict what the stock market or real estate market will do. I have personally seen, however, a local resident who cashed in about $45k that was parked in a 401K to invest in real estate netting $400k equity in about 3 years. If your portfolio is traditional stocks and bonds and we experience another crash, is this game over for your retirement? If you would like to know where the real estate market is or learn more about Self-Directed IRAs please email Marty.

For more information, contact Marty Walker at Source Investopedia. This article was not written by and does not necessarily reflect the opinions of Coeur d'Alene Regional REALTORS®