Is Your Retirement Account Recession Proof?

Most Americans are facing a massive problem with their retirement accounts. Their retirement funds are invested in a system that is inherently speculative and not designed to perform during all phases of the cycle. Fortunately, there is an alternative strategy that could provide more protection, predictable cash flow, and peace of mind.

The current system is built around traditional Wall Street investments (such as stocks, bonds, and mutual funds), where investors get to enjoy riding the wave when markets are good, but get crushed when they crash. Speculative products like these may not be appropriate for retirement accounts, yet most people who are saving for retirement continue to invest in them because they aren’t aware of alternatives.

As investors, we all have to remember one of the most important truths: History always repeats itself. Wall Street will crash again, so it may be smart to consider a different approach.

There is a little-known strategy that can shelter a retirement account from losses and deliver positive returns, even during recessions. It can reduce volatility and allow the growth of retirement savings in any market, grant peace of mind, and best of all, put investors back in control of their retirement.

This little-known strategy involves a specific type of real estate as an alternative.

Alternative investments (such as real estate) in a retirement account can seem foreign because most financial advisors are trained and incentivized to sell only stocks, bonds, mutual funds, and traditional Wall Street products. Most people are simply not aware they have the ability to invest in alternatives through their account.

The uncommon nature of the right alternative is exactly what can deliver uncommon results, providing investors more protection, predictable income, and peace of mind through any market cycle.

3 Steps to Protect Your Retirement Portfolio with Alternative Investments

Let’s take a deeper look at each of these:

1. Get out of Wall Street by opening a self-directed IRA.

The large financial institutions that most of us work with don’t offer alternative investments, so we assume our retirement accounts are limited to traditional Wall Street products. However, we can invest retirement funds in alternatives such as real estate, through a unique vehicle: a self-directed IRA (SDIRA).
SDIRAs put investors in control and allow them to “direct” their retirement funds into alternatives. This grants the freedom to choose investments that can insulate retirement savings from market volatility.

Pro tip: Seek guidance from a SDIRA expert.
Because there could be a conflict of interest, your existing advisor may not be the best source to talk to about SDIRAs. They may not have expertise on self-directed accounts, and since they are financially motivated to keep your money invested in Wall Street, they may even suggest SDIRAs aren’t available to you. It’s best to seek a company that specializes in administering self-directed accounts to learn more. (A 52TEN favorite is an Arizona firm called Vantage.)

Once you’ve selected a firm that offers self-directed IRAs and opened your account, you’ll need to fund it by transferring money from an existing IRA or another qualified retirement account. Be sure to follow the guidance of your new account administrator so funds are moved properly and remain tax-deferred.
As soon as your account is funded, you’re ready to invest in alternative investments that could better protect your retirement nest egg from what’s ahead.

2. Find a smart alternative that is passive and recession resistant.

While SDIRAs allow you to invest in many alternative investments, the most common type is real estate. However, some real estate classes have risk similar to Wall Street investments, so it’s crucial to choose one that is appropriate for an SDIRA.

There is a unique real estate niche that fits these requirements perfectly: mobile home parks (MHPs). Even in the most dire market conditions, MHPs can provide predictable returns while sidestepping the volatility of traditional investments.

Why mobile home investments are right for retirement

On the surface, MHPs may not look like the type of real estate you’d want to invest in, but when you look deeper, you’ll find several remarkable qualities that make them perfect for retirement portfolios. Here’s why investors love MHPs:

High demand
Demand for mobile homes has never been higher, as baby boomers retire and people of all ages seek out affordable housing. At the same time, supply is dwindling due to redevelopment, leading to even more demand.

Stable cash flow
A unique characteristic of MHPs is that residents own their own home, while they pay monthly rent for the lot their home sits on. As homeowners, residents have a vested interest in staying at the MHP and rarely move, resulting in low turnover and stable cash flow for investors.

Recession resistance
During a recession, MHPs experience higher demand because they’re the most affordable housing option. This heightened interest, coupled with stable cash flow fuels MHPs’ strong performance through times of uncertainty, when most other real estate segments suffer. (For more information on why MHPs are recession resistant, see this article.)

Uncorrelated performance
MHP performance is not correlated with the stock market, the economy in general, or the broader real estate market. When everything else is in chaos, MHPs can offer the most predictable cash flow with the least amount of volatility.

Whether the market is booming or busting, MHPs can deliver more stable returns with less risk than traditional investments and other types of real estate. That’s why they are such a good fit for SDIRAs.

3. Direct your SDIRA funds into that smart investment.

Warning: SDIRAs should only hold passive real estate.

Before you invest in any real estate, it’s paramount to understand that you cannot directly or indirectly benefit from your SDIRA account, and your SDIRA cannot directly or indirectly benefit from you.

For example, you shouldn’t flip houses or rentals yourself with your SDIRA, or buy a vacation rental and let your family use it on the weekends. These types of investments are usually prohibited, could endanger your IRA’s tax-deferred status, and might trigger tax liabilities on your entire account. Moreover, investing in active real estate opportunities with your retirement account could create more work for you — the complete opposite of what should be happening. Look for passive income, not more day-to-day responsibilities.

Ideally, you will want to work with an experienced real estate company that offers passive investments in real estate opportunities. The process of investing in a real estate project (called a “real estate syndication” or a “real estate fund”) is similar to purchasing shares of company stock, except that you own an interest in a property or portfolio of properties.

The real estate investment company (also known as a “Sponsor”) finds good properties, performs all the work, and takes care of the day-to-day operations, while you share the benefits of ownership alongside them.

All real estate investments and all Sponsors aren’t created equal, so make sure the Sponsor you choose provides the three things every investor wants: comfort, the best investor experience, and strong return on investment.

Once you’ve found the right Sponsor to partner with, you can self-direct funds from your new SDIRA into one of their investment opportunities.

The Dream: a Stable Investment and a Comfortable Retirement

Avoiding volatility requires moving retirement funds out of traditional Wall Street investments and into a more stable alternative. SDIRAs are the vehicles that make this possible.

The right real estate investment for your SDIRA should be capable of producing stable returns over a long period of time and weathering the worst economic storms. Mobile home investments have a unique ability to accomplish this goal. Although they are often misunderstood or overlooked, MHPs are a solution that can deliver predictable returns and insulate investors from the volatility of traditional investments, even during down markets.

Approached correctly, investing in mobile home parks though a self-directed IRA could be the most powerful way to build your wealth and enjoy the comfortable retirement you deserve.

This content is the perspective of the author and is not intended to be relied upon as a forecast, recommendation or investment advice, and is not an offer or solicitation to buy any securities or to adopt any investment strategy. The information and opinions contained in this content are derived from experience, historic data, and other sources deemed to be reliable, are as of the date of this content, and may change as subsequent conditions vary.