If you’ve ever listened to traditional investing advice, met with a financial advisor, or even started a new job, you’ve probably been persuaded into the merits of stocks or stock-based retirement plans like the 401k. Today, I want to unpack the paradigm of building wealth through stocks and provide an alternative method for investing: the self-directed IRA.
On this episode of Investing in Real Estate, I’m going to share five major drawbacks of investing in stocks, and why a self-directed IRA, in my opinion, comes out on top every time. Click play to hear more about real estate investing vs. stocks!
5 Major Drawbacks of Investing in Stocks
- Hidden fees. When you invest in the stock market, you’re going to be paying all kinds of fees. There are commissions and brokerage fees that can eat into your profit. But what I really dislike about the fees on stock-based accounts is that they’re sneaky! I prefer investing in a self-directed IRA, where there’s a one-time set up fee and then a yearly service fee paid to the custodian. You can also expect to pay transaction fees when you wire money or make a purchase, but all of this information is upfront, and the custodian isn’t taking a percentage of your profit under the guise of brokerage fees. In fact, your custodian is not allowed to give you financial advice, so you don’t have to worry about ulterior motives–they’re just there to move your money around according to your wishes.
- Volatility & risk. The stock market can be erratic, and stock prices can swing based on a number of different variables. Everything from politics to current events can make stock prices tank! If you don’t have the tolerance for this kind of risk, it can be a big punch in the gut. I don’t know about you, but I certainly don’t want Wall Street or Congress or the CEO of Coca Cola to have the ability to impact my family’s future. This is why I prefer buying real estate within a self-directed IRA. I have a real, tangible asset that isn’t going to lose its value in a day. Yes, the real estate market can have its ups and downs too, but if you make a smart investment, you’re not going to see too much variability in your rental income.
- No control or freedom. Think about it like this: when you invest in the stock market, you have very little control in what’s happening with your accounts, especially if you’re investing through a 401k or IRA. And as a shareholder, you get paid last! What a rip off. When I invest in my self-directed IRA account, I get to choose the asset and I’m collecting monthly rent directly into my account. There is no money-grabber middle man. If you’re looking for more control over your retirement or more freedom to invest, I can’t recommend a self-directed IRA enough. It’s your money and your retirement, and my philosophy is that you should have some discretion over it!
- Difficult barrier to entry. If you plan on buying stocks on your own, there’s a lot of research involved. You’ll need to spend a lot of time studying financial statements, annual reports, the market conditions, and specific companies you intend to invest in. But should you choose to invest in a self-directed IRA, the account can be set up in minutes and we can help educate you on your options… for free!
- Lack of streams of income. A stock-based account can provide just one stream of income, but when you buy real estate in a self-directed IRA, you’re essentially getting three streams of income: cash flow, appreciation, and principal reduction. Not to mention, your wealth is growing tax-free. There are no capital gains taxes, no dividend taxes, and as long as you don’t tap into your funds before retirement age, withdrawals are tax-free and penalty-free in a Roth self-directed account.
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Investing in Real Estate with a Self-Directed IRA
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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