10 Reasons Why You Need an IRA Real Estate Specialist

As we continue to help people diversify their IRAs and 401ks with real estate, we've come across this question more than once: "Why should I work with you instead of representing myself or working with my local real estate agent?" A fair question so I thought I'd formalize our response to it.

Using your brother, uncle or the neighborhood residential specialist as your real estate agent when investing your IRA in real estate is not a good idea unless they have specialized knowledge and experience with this type of transaction. What's needed is the combination of a good real estate lawyer, a real estate agent specializing in investing and a CPA that either does, or is willing to understand self-directed investing. Here are ten reasons why you need a specialist like Freedom Growth when making IRA real estate investments.

1. Not the usual real estate deal. Real estate investing is a specialty much different than buying or selling your home. Beware of residential and commercial agents claiming to know about IRA investing especially now that the market is tight and agents are hungry. You could get stuck in a binding agreement with someone who is not equipped to handle these transactions.
   
2. Property selection. The factors used to select the right owner-occupied home are driven by subjective and emotional motives. Real estate investing uses business and finance principals to locate the right investment. Your agent needs to crunch the numbers to make sure it’s the right investment for your needs.
3. Who is the buyer? When investing using your IRA, you are not the buyer. You need to understand what role you, your IRA and the self-directed custodian play in the deal.
4. Prohibited transactions. Very few real estate agents understand anything about the perils of making the wrong investment. The consequences can be rather severe so it’s best to work with someone who understands real estate investing and the rules on self-directed investing.
5. The offer. After finding the right investment property, writing a good offer using your IRA requires specialized knowledge that many real estate professionals do not have. Doing it wrong can result in delays and missed opportunities.
6. Joining Forces. Thinking about investing with a family member or friends? Getting solid advice about joining with other investors is crucial to avoiding the pitfalls that can result in trouble for you and your retirement account.
7. Commissions. Who receives a commission on an IRA real estate deal matters. This is especially true and dangerous when agents represent themselves or a family member is the agent.
8. Titling the property. How should title to the property be taken? Your real estate agent probably does not know. The answer depends on several factors. Some are legal. Some are practical.
9. Financing. Is financing available? If so, you need to understand the merits and drawbacks associated with leveraging the property. Again, specialized IRA real estate knowledge and contacts are required here.
10. Liability. Let’s assume you’re buying a four-unit income property. What happens if someone is injured on the property? You need to understand how your IRA handles insurance claims, negotiations, and settlements.

Freedom Growth brings together the real estate, legal, and financial skills required to assist its clients in making successful IRA real estate investments. If not us, be sure the team you enlist has what it takes to keep you and your retirement account on solid ground.

"Finance Companies are Better Off With Customers Being Financially Illiterate"

Financially illiterate consumers are good for the financial sector according to Adam Levin, chief executive of the consumer education website Credit.com in yesterday's LA Times story entitled "Rescuing Teens from Economic Ignorance". In his story he talks about how adept kids are today with computer literacy, social networking and cell phone mastery. But they have no idea what balancing a checkbook, setting a budget or saving for retirement means.

Here are the highlights of the story, or low lights if you're a teenager on the verge of adulthood in today's economic environment.

• Millions of Americans are learning the hard way about the pitfalls of teaser mortgage interest rates and runaway credit card debt. Sadly, their children may be doomed to repeat the mistakes of their overdrawn elders.
• "We've been going for years without that education, and it's one of many factors contributing to the whole mess we're in," said Karen P. Varcoe, a consumer economics specialist for the University of California.
• "It's kind of scary, thinking about doing this on my own," said Steffy Sulub, 17. "People our age are just let out on our own when we don't even know what to do."
• Nearly all young people agree that acquiring good money habits and setting financial goals are crucial to success, surveys and studies show. But high school seniors correctly answered fewer than half the questions on a 2008 test of basic finance knowledge, said the Jump$tart Coalition, a financial literacy group.
• And, although most young people attribute their financial knowledge to their parents, only 30% of students surveyed for Charles Schwab said their parents tried to provide some economic education.
• It's a dangerous cycle, said Adam Levin, chief executive of the consumer education website Credit.com. Parents are so preoccupied with -- or embarrassed by -- their financial affairs that they don't take time to mentor their children about money.
  
• The good news, Varcoe said, is that teens are keenly interested in learning about money. Arming them with some fundamentals may help them weather the next recession better than their parents are faring now.

As Levin stated, financial institutions make huge profits from the fiscally uneducated masses. So do your kids a huge favor. Besides teaching them how to drive a car, respect their elders and to do unto others as you'd have them do unto you, teach them about managing their money before they have any to manage. Few of us received that education growing up in the '60s, '70s and '80s and were forced to learn the hard way. Make sure your children fare better.

And while you're at it, treat yourself to a little updated financial knowledge. What's happening with today's economy is wreaking havoc on everyone's portfolio. Make sure you're better prepared for the next financial downturn since it may appear when you're on the cusp of retirement. There are plenty that are willing to help, but YOUR future financial independence starts with YOU taking the reigns.

As dire as the news is coming out of Wall Street and Washington, opportunity exists. Looking past the headlines to find it takes a little moxie, but you have the power to shape your financial future right now. If you don't see the opportunity, find someone who does and listen to what they have to say. Even if you don't agree, at least you took the time to explore options and listen to alternative theories to staying put and waiting for the market to rebound. You may learn something that you can implement at another time...and maybe gain knowledge that you can impart to your children.

Mistakes To Avoid in Today's Market

Did you happen to notice what the stock market did yesterday? Of course you did. It's nearly impossible to avoid the never ending stream of dire news about our economic slow down...er, recession...wait, depression? Whatever history will deem worthy for this economy, the question remains: What should you be doing with your retirement account to survive?

Here are six mistakes to avoid with your retirement account...sprinkled with a dash of opportunity. Now is not the time to let your retirement statements remain unopened, stash money under the mattress and ride out the economic malaise. You only get one retirement, so the time to take action is now.

1. Quit Contributing: Most would argue that a lack of personal (and institutional) savings is at the core of this current financial mess. Without savings, we sustain our supplement our standard of living by borrowing, usually via credit cards and home equity lines. The plan is to pay that debt with future income increases or home appreciation since time is on your side. But when you’re retired, your future income potential is at best limited and probably non-existent. And we’ve all seen that counting on unlimited home appreciation is a bad idea. Unlike other business ventures we may engage in or entertain over the course of life, there’s no “recovery” from poor retirement planning since time is no longer on your side. Saving for your retirement should always be a priority, no matter what the condition of the economy. So continue to save as much as you can, especially if your employer offers matching funds. Why would anyone pass up free income?

2. Convert All Assets to Cash: As the market has gone from bull to bear to vulture, the natural instinct is to convert all of your retirement nest egg to cash to eliminate losses. While there’s merit in that approach for a short period of time, keeping your money in cash over the long haul is just another way to lose money. Assuming your custodian pays you a 1% - 2% return on your cash or money market account, your money will continue to rise year over year. But also assuming inflation will remain steady at 3% - 4%, you are “losing” money every year.

3. Un-diversified Portfolios: How many people had all of their retirement savings strictly in equities? Nearly 80% of all retirement assets were invested in mutual funds and stocks according to the Investment Company Institutes’ US Retirement Market report published in Q3 of last year. True diversification is NOT owning different stocks and mutual funds no matter what your brokerage tells you. True diversification involves spreading your retirement beyond equities to include investments in asset classes such as fixed-income, cash, commodities and real estate. A well diversified portfolio helps to reduce the risk of substantial losses in a range of economic conditions and provides steady, proven growth to your retirement account.

4. Ignore Opportunity: It’s very easy to get caught up in the hysteria of what’s happening each day to the stock market, our banking industry and key economic indicators. But don’t get so overwhelmed that you miss the opportunities around you. People are having a hard time borrowing money these days? Why not use your retirement account to make trust deed loans? Investors are using their IRA, 401(k) and pension plans right now to make loans to other investors, secured by real estate, that are producing double digit returns. People are having a hard time paying their property taxes? Why not use your retirement account to purchase tax liens? Investors are using their accounts to purchase tax liens at public auctions and again are making double digit returns on their retirement savings. Are these types of investments guaranteed to produce returns? No...no investment ever is. But the current market IS providing opportunity if you're willing to look beyond the headlines and the norm.

5. Go It Alone: Most individuals have a very passive attitude about their retirement account. They’ve historically trusted their “diversified” stock market portfolios to provide for them and now too overwhelmed with everyday responsibilities to find a way around the current mess. We’re all busy, but your retirement is your responsibility alone, so take control. You need to develop your own personal recovery plan that unfortunately will not involve any Federal bail out money. If you don’t have the desire or inclination to develop one on your own, there are professionals out there to help. Find a “fee based” certified financial planner or CPA that isn’t beholden to a singular financial institution and will design a diversified portfolio for you to help survive...and maybe even thrive...in this market.

6. Keep Everything In the Market: It will come back, right? Yes, it probably will. But when? Waiting for Wall Street to rescue you from the mess that it created is like trying to lose weight by switching from Quarter Pounders to Big Macs. You need to alter your behavior and build a stronger portfolio today, not once the market comes back. Don’t cash out of everything, but other investment classes are offering opportunity right now while the market continues to decline. There are plenty of self-directed custodians out there that offer a range of investment accounts that will allow you to take full advantage of ALL investments that are possible by the letter of the law. So don’t limit your personal recovery plan to the investments offered by your current retirement plan. There are options out there, it’s up to you to find them.

10 Questions With - Ace Capital

Today's installment of "10 Questions With" offers an overview of land banking with Ace Capital. We love land banking in a retirement account since it is by nature a long-term appreciation building investment with very little maintenance. And this particular company is offering land banking in the Antelope Valley area of Los Angeles, which we feel is about to explode with clean energy development. Check out this segment from NBC news that outlines the vision of the Valley from the current political leaders.

I invite you to learn more about land banking with Ace Capital. Please take a read and let me know what you think.

1. Tell us a little about you and your company.
ACE Capital Group is a real estate company. We are not real estate brokers or financial advisors. We are the principals who purchase and sell carefully selected California pre-developed real estate.

2. Please tell me about your real estate opportunity.
Our programs and services are offered with the primary purpose of using land banking as an easy, secure and superior alternative for building sustainable wealth:

• We effectively use the strategy of long-term appreciation in land ownership by purchasing and selling property in the growth path of major metropolitan centers.
• We help qualified retirement account holders to roll over their funds from the volatile stock market into more predictable California real estate. Of course, we also work with cash. In addition, 1031 Exchanges are an ideal way to move money into a Land Banking strategy.

3. Where does your opportunity exist?
Ace Capital Group has perfected the formula for making sure the land we purchase in indeed in the path of growth and will be in a position to appreciate at a safe and predictable rate. The best place we have found is right here in Southern California within a sixty mile radius of Los Angeles.

4. How long have you been offering this real estate opportunity?
Our business has evolved from the extremely successful personal investments of our founders. Since 1974 their enterprises have helped over 10,000 individual buyers build their personal wealth with land banking. Our proven three step formula provides individuals and business owners with an innovative option to secure a better retirement, a legacy for their children and grandchildren; and we have voluminous testimonials from our buyers attesting to their satisfaction.

5. Does your opportunity help investors build long term wealth, immediate cash flow or both?
Land Banking is a term used by both individual investors and corporate land developers. It is the strategy of purchasing a parcel of land and holding (or banking it) it for typically five or more years for future sale or development.

Land banking is a proven long-term appreciation strategy for building wealth and providing individuals with a safe and profitable alternative for building their retirement nest egg. But, successful land banking requires planning and patience

6. Is financing available for your opportunity?
At this time there is no financing available for our process. We focus on helping people make their retirement funds work smarter and harder than they can in traditional methods. Therefore, it is cash that is already available but performing at less than the optimum capacity.

7. Are there any special tax advantages?
If using retirement funds then the tax advantages are great, especially if held in a Roth account.

8. Why is your opportunity ideal for self-directed IRA investing?
IRA monies are already set aside for long term wealth building. This is exactly what Land banking is all about. It is a long term strategy that blends perfectly in the IRA model.

9. How does your company make money?
ACE Capital makes it‘s money at the time of purchase. Our acquisition department is second to none in finding properties that meet our specific formula specifications that ensure appreciation. We buy direct from private owner with cash so we are able to strike great deals. We do not buy from the MLS or brokers so the prices are much better. As we are able to purchase the properties at well below market value we are able to cover our expenses and still offer the properties back out at below fair market value. The appetite for profit is low as we are able to help many people move into Land Banking. Therefore, volume sales help keep the prices where we can put people in equity position right away.

10. What type of results can investors expect with your opportunity?
First and foremost, we have never lost anyone’s money. It is a tangible, grant deeded, title insure piece of property. We have statistical data provided by an outside source that shows the appreciation rates in the area where we focus has been able to provide consistent 18-20% compounded annual appreciation for years. Specific information is available upon request.

10 Questions With - Hanover Investments

Congratulations on your brand new self-directed retirement account! Now what are you going to invest in?

I've been finding that some new investors when confronted with this question aren't sure how to answer it. They're enchanted by the freedom of controlling their retirement account and the range of investments the self-directed environment provides. So they take the first step and open a self-directed account. But when it's time to make an actual investment, they are frozen with indecision by the same, unlimited choices that they were initially attracted to. In essence, their path to financial freedom is mired in a money market account making 1% instead of the larger returns they envisioned.

We believe one way to thaw this indecision is with more in-depth knowledge on what's possible, how these investments work and who is behind them. We are currently adding a new section to our site entitled "10 Questions With". For every opportunity we believe in, we're going to ask 10 questions to the provider allowing them an opportunity to explain how their investment works and why it is ideal to hold within a self-directed IRA.

The first few will be posted on this blog, so check back often. For today, I invite you to learn more about "Go Zone" investing with Hanover Investments. Please take a read and let me know what you think.

1. Tell us a little about you and your company.
My name is Matthew Stearns and I am Vice President of Sales for Hanover Investments. Hanover is a subsidiary of Guterman Partners which has been around 40+ years. We are fund advisors, developers, real estate investors, and property managers.

2. Please tell me about your real estate opportunity.
Our opportunity is ideal for every day business professionals that want to invest in real estate passively and are looking for strong returns and tax breaks with a turn key strategy. Because of the current market conditions, and the low cost of purchasing as opposed to developing, we are currently buying in bulk directly from developers of new condominium and townhome projects with our own cash. The in bulk discount we receive is passed on to investors who purchase the individual unit or portfolio of units from us at today’s current market value as an investment vehicle. We also offer a “total leasing program” which contractually guarantees 30 months NET cash-on-cash returns from the day a purchase is made. At the end of the 30 months, the investor can continue to hold and manage the unit, still with positive cash flow, or sell it at current market value.

3. Where does your opportunity exist?
Our opportunities are in “make sense” markets. The primary market of focus right now is the Gulf Coast of Mississippi in an area called the Go Zone. The Go Zone is short for The Gulf Opportunity Zone Act of 2005, signed into law by President Bush on December 21, 2005. It contains significant economic incentives to rebuild the Gulf Coast, as well as to attract new investments to the affected areas. This market was rated #1 by realtor.org in 2008 and offers huge tax incentives to investors and home buyers. We have limited inventory and demand is high down there because of the strong condition of the housing and jobs markets in Mississippi.

4. How long have you been offering this real estate opportunity?
As I mentioned earlier, Hanover is a subsidiary of Guterman Partners which has been around 40+ years. We have successfully deployed this business model for the last 40 plus years, starting in New York with apartment buildings in the late 60’s. Currently, we have been focused on the Gulf Coast since the Go Zone legislation was enacted in 2005. We currently manage 25 plus complexes Nationwide and have over 500 units in our "total leasing program."

5. Does your opportunity help investors build long term wealth, immediate cash flow or both?
These opportunities build both. Investors will see cash on cash returns during our lease as high as 40% for the term. And this doesn’t take into consideration the tax benefits or future capital appreciation potential that we believe the Gulf Coast offers.

6. Is financing available for your opportunity?
Yes. We have non recourse lending institutions for those investing in their IRA and private, portfolio, and conventional banks for those that want to purchase with cash. We still go as high as 90% financing for investors purchasing with a conventional or portfolio lender.

7. Are there any special tax advantages?
Yes. The "Go Zone" offers a 50% bonus depreciation in the first year they place the property into service to offset other gains. Please see your CPA for your specific scenario. This is the biggest reason to purchase in the Go Zone. Take a $200k offering. You can depreciate 50% of that asset in the first year you place that asset into service minus that tax bracket you fall into, to offset other gains!

8. Why is your opportunity ideal for self-directed IRA investing?
This is a fully managed real estate that cash flows from day one. It’s as easy as watching your IRA statements coming to you in the mail. Moreover, non recourse lenders for IRA’s are just like commercial lenders and they look at the performance of the asset, not the individual. This makes the approval process very easy. Investing in real estate through your IRA is becoming the latest trend!

9. How does your company make money?
Hanover makes money by subletting the unit out to other renters after the investor purchases the property. The investor will cash flow on the lease with Hanover and we will cash flow with our tenant. This is possible because when we purchase from the developer we purchase with cash and in bulk. That discount is passed onto the investor through the "total lease program", a discount they could not obtain on their own. Our profit is solely made by subletting and managing the unit. The investor utilizes our discount to hedge any risk on the property making it a safe and secure investment from day one. After our lease is up at 30 months, we can continue to manage the investment for the investor and take a management fee that is originally covered through our lease until the day they sell.

10. What type of results can investors expect with your opportunity?
All investment opportunities result in positive cash flow from day one through the life of the investment. As stated previously, it’s a managed real estate investment with minimum assured 30% cash-on-cash returns. Additionally, investors can take advantage of the "Go Zone" tax credit, if they apply.

Why Real Estate in an IRA?

I stumbled upon this blog entry by a individual that manages "traditional" retirement investments. His posting was fraught with inaccuracies and bad information so I felt compelled to answer. So first, his blog entry which was found here, then my response. Enjoy and please feel free to comment on either entry.

IRA Real Estate –a Bad Idea

Even with the bloom off the rose, investors still have interest in using real estate in IRAs. The interest and use of real estate in IRAs peaked with prices. Even as the real estate market cratered, real estate professionals with sagging commission income pushed IRA real estate (often mistyped or incorrectly searched as IRS real estate) on investors dissatisfied with stock market returns. But IRA real estate is a bad idea for IRA savings. Here are five reaons why real estate is a bad idea for tax sheltered retirement investing.

You lose the depreciation deduction. One of the nice things about owning apartments or rental homes is that the cash flow is partially sheltered from income tax by the depreciation deduction. Since an IRA does not pay current tax, IRA real estate loses the deduction. Why would someone knowingly lose a tax deduction? Because they are likely sold on the idea of real estate in IRAs by a zealous real estate sales person. Or, they may only have liquidity in their IRA and no cash outside their IRA. If you don’t have the cash outside the IRA, then pass on an IRA real estate purchase.

You lose financial leverage. When you purchase real estate outside of an IRA, you can typically put 20% down and borrow the rest. So when the property appreciates 20%, you have doubled your investment–a 100% return on your equity. But an IRA real estate purchase cannot be done with any mortgages as IRAs cannot have debt. So you must make the purchase for all cash. Now, when the property appreciates 20%, you have a 20% return on your money, not 100%. Therefore, you lose the leverage of “other people’s money” when you consummate an IRA real estate purchase.

You turn the best capital gains asset into ordinary income. Because of the leverage explained above, you can have very large capital gains on real estate. Not only do you lose the large capital gain potential because of losing leverage, you have turned a capital gains taxed at reduced rates (15% to 25% on real estate), into ordinary income (rates as high as 35%). There is not such things as capital gains on IRA real estate because everything withdrawn from an IRA is taxed as ordinary income.

If the rental property in your IRA needs a new roof, you must use IRA funds to replace the roof. You cannot use your own funds as then you as an individual are deemed to be in business with your IRA and this is a prohibited transaction which could cause your IRA to become taxable. So you need to always have plenty of cash in your IRA for repairs, insurance payments and property taxes. This means you need to keep funds liquid in 1a 3% money market and sacrifice the potentially higher returns of other investments. Need yet another reason?

Your IRA fees are likely free at your brokerage firm or bank. To hold real estate in IRAs, you need a specialized IRA custodian willing to do this and the fees range from 40 to 150 basis points annually–i.e. hundreds of extra dollars in costs.

And just in case you still want IRA real estate, if you should make a bad deal, your loss will not deductible inside an IRA as it would be as a non-IRA transaction. If you line up 10 people that tell you placing real estate in IRAs is a good deal, you will find 10 people that earn commission by selling real estate. If you want real estate in your IRA, then buy shares of real estate investment trusts or other real estate securities.

1. David Coe Says: Your comment is awaiting moderation.
   December 10th, 2008 at 3:00 pm

   I guess I’ll start off with the fact that I am a real estate professional that specializes in IRA real estate purchases. Why? Because real estate is an EXCELLENT investment to hold within an IRA. Let me give you 5 reasons why.

   1) Create Leverage: Your IRA can absolutely borrow money! National American Savings Bank (www.nasb.com) is one lender that does non-recourse loans to IRA holders. They usually require 30% - 40% down and want to see positive cash flow in any deal, but you can create leverage with an IRA. By the way, you could also borrow money from another IRA holder since lending money is also allowed by law.

   2) Tax Free Cash Flow: A successful real estate investment can provide monthly cash flow to help grow your retirement along with any appreciation earned in the property itself. Since the asset is held within a tax-free environment, there are no taxes to worry about. Any profit withdrawn from the IRA is income based on your tax rate upon withdrawal. And since you’re in retirement, your taxed at a lower tax rate based on the limited income you make. And if you own the asset in a Roth IRA, the monthly cash flow and capital gain are TAX FREE.

   3) Control: Want to improve the value of your investment? Add a new roof. Put in carpet. Do landscaping. Add new fixtures. All of these improvements can increase monthly cash flow and ultimately improve the value of your asset. These costs do get paid out of your IRA, but name another investment class that you can improve with your own free will. If you own mutual funds, CD’s, stocks, you’re along for the ride and your return is completely independent of your effort. Not so with Real Estate.

   4) Inexpensive Custodian Fees. Self Directed IRA custodians get paid based on the size of your account, usually 40 basis points or less. So if you have a $100,000 account, your annual fee is in the $450 range. But that’s it. Other banks and brokerage houses don’t charge you a fee because they make their money from the limited investment products they offer. Own mutual funds? Their fees can include management fees, redemption fees, exchange fees, account fees, purchase fees, distribution fees and operating expenses to name a few. Usually these fees are TWICE as much as what a self-directed custodian will charge.

   5) Diversification. Real estate offers a great way to diversify your portfolio. How many people had ALL of their retirement portfolio in the stock market? Nearly 70%. Use real estate as a way to generate leverage, produce monthly cash-flow and long-term appreciation. But also use it to balance your retirement portfolio, along with other asset classes, so retirement doesn’t get postponed due to a bear or down market.

   I offer that if you find 10 people who advise against real estate in your retirement account you’ll probably find 10 people that LOSE money when their clients shift assets to a self-directed account and out of their control.

It's not the 401(k) that needs fixing

With pension plans becoming extinct, more and more corporate Americans are using 401(k)s as their primary retirement savings vehicle. But the rapid decline in value of these accounts is raising questions about the viability of this system. But is the 401(k) really to blame for this mess or is it the custodians that set them up and manage them?

The 401(k) is rightfully expected to go under the microscope with the new administration and overwhelming popular sentiment that retiring at 65 for most Americans is a pipe dream.
But don't blame the 401(k). The 401(k) is a well structured retirement vehicle that encourages employees to save with tax deferred contributions. It also allows the corporation or small business to contribute to the employee's account and earn tax savings of their own. Someone under 49 years of age can contribute up to $15,500 a year tax free. If you're 50 or older, the maximum is raised to $20,500. When you add whatever corporate match your company provides, these numbers are significant when done over the course of a career. Your 401(k) can provide a significant amount of retirement savings if the contributions are invested wisely. So what's the problem?

The problem is that most 401(k)s are managed by banks and Wall Street custodians that only allow investments from their portfolio of products. Want to own a duplex that produces monthly cash flow and long-term appreciation? Too bad. How about a parcel of land in the path of development? No way. Your neighbor's ice cream shop that has an exciting new business plan? Forget about it. Since the custodian doesn't profit from these types of transactions, they aren't allowed. But are they legal? Absolutely. Do these types of investments allow a better diversification of your retirement account and help protect your nest egg when the stock market declines? Without a doubt. Then why don't more corporations allow them?

When the 401(k) and IRA were first created in 1974, the law required a 3rd party custodian to manage the accounts. Wall Street quickly seized this role and made stock market investments the centerpiece for growing wealth. To date, nearly 85% of all assets owned in 401(k)s and IRAs are invested in stocks and mutual funds according to the Investment Company Institute. And for the first 30 years the stock market produced unusually high gains so no one questioned this model.

In 1974, the Dow Jones closed around 1,000. In 2000, the Dow closed at 11,000. That produced almost a 10% compounded annual growth rate. For the century, the Dow produced a 5.3% growth rate. So for the first 25 years that the 401(k) was in effect, the market was delivering a return that was TWICE it's normal rate. Everyone was making money, so no one questioned the system. Since 2000, the Dow has been losing money at -3.6% every year. Naturally, questions are arising and Wall Street is digging in its heels.

I argue that it's not the 401(k) that needs to be fixed but the current system that perpetuates this over-investment in the stock-market. We need to wrestle away the control of our retirement accounts and start exploring a greater range of investment options. If you're not sure what to invest in, get professional guidance through a FEE-based certified financial planner that makes their living on growing your account, not by selling you a specific set of investments products. And being a real estate guy, I encourage you to explore real estate. Eight out of ten millionaires made their fortunes through real estate. It's a proven long term asset that when invested properly can substantially grow your retirement account.

Should more Americans save more money? Absolutely. And maybe if more investment options beyond the stock market were available, they would.