Over the years I’ve been contributing to my retirement account which is made up of investments in various stock market assets, stocks, bonds, and mutual funds. You are probably familiar with the ways to invest aggressively, moderately, or conservatively based on the mix of holdings in your portfolio. I don’t claim to be an expert and I just know that over time my retirement account has increased a little most years. I’ve been following the advice of financial planners for a long time with the goal to eventually retire.
For most people, the median account balance at the age of retirement for most people is around $120K according to most sources. Experts say it costs about $1MM to $1.5MM to retire. This is a huge gap and admittedly I couldn’t think about retiring right now. I have been giving a lot of thought to how I will be able to retire. I’m turning 48 in a few days and my goal has always been to retire “early”. Along with many other self-employed people I also struggle to save enough to leverage the “compounding interest” enough to get to where I would need to be using my retirement account. In Tony Robin’s book “Money Master The Game” he talks about the actual amount of fees the financial institutions take out of retirement accounts and the returns people think they are getting are often much lower. It is a great book that reveals the truth. According to a Forbes article, he writes, “The average cost of owning a mutual fund is 3.17% per year!”. That is a huge number and over time can cost hundreds of thousands of dollars as he illustrates on page 106 in the book. With all of the fees, taxes, and inflation traditional retirement accounts just don’t seem to be the best vehicle to get the best gains in my opinion.
What is a better way to grow your retirement account? I found out about real estate investing and how you can use your “Solo 401(K)” retirement account to invest in syndications. In my other articles, you read about the benefits of syndications including monthly cash on cash returns, depreciation benefits for reducing taxes and the overall rate of return is normally in the double digits. Syndications are typically longer-term investments of 3-10 years and there are also opportunities for shorter-term investments of 6-12 months. These are called private money loans used by house flippers for individual house flips. It is also possible to use retirement accounts to fund these projects and profits stay in the account to help grow it much quicker than waiting for the stock market as most people do currently.
The short-term investments in real estate can yield high single-digit and low double-digit returns quickly. Longer-term multifamily syndications routinely return an average annual return of 10% and above without volatility and after fees, inflation, and even taxes. Stock, bond, and mutual fund returns are in the low single digits on average over time when you consider the fees and capital gains taxes.
I recently converted my Traditional 401(K) account to an Individual or Solo 401(K) so I’ll have the opportunity to invest in other asset classes like real estate syndications, cryptocurrencies, or traditional investments if I choose to. There is a lot more flexibility with this type of account and I used a company called https://www.mysolo401k.net/ to open it. My mentor, Jens, recommend them and they have been great to work with.
Some may be thinking the best time to invest in the stock market is when it is in turmoil and prices are low. I’m suggesting it might also be worth considering learning more about passive real estate investing for an asset class that is very stable. You might be hearing in the news that the COVID-19 pandemic hurt rental real estate. As you read about this keep in mind that people will always need a place to live as they continue to rent or transition out of their house due to unfortunate circumstances. Rental real estate is and always will be a solid asset class so consider learning more about it and how you can participate passively to grow your retirement account.
As opportunities arise I’ll be sure to send out updates for you to consider participating in if they seem interesting to you. Thank you for taking the time to read this and let me know if you have any questions or comments.