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Real Estate Market Slowdown: It is Time to Self Direct Your IRA to It?

ForeclosureThe real estate market is in a decline, with some experts say that it will reach the bottom-low valley in two or three years. Worsen by the credit crunch, the real estate market is now in a defensive position.

Right? Well, not entirely.

Some investors and businesses are thriving in the real estate market – foreclosure ‘hunters’, buy and rent back, and other opportunities.

Another way to take benefit in today’s real estate market slowdown is investing in real estate through self-directed IRA.

What is self-directed IRA?

The IRA (Individual Retirement Account), along with your 401k is often invested on the stock market, which is the reason why many people lose their retirement fund due to the stock market crash.

It is about time to be independent in managing your personal finances. Knowing and understanding the whereabouts of your money is key in protecting yourself from economic downturn, as well as allowing yourself to find better investment vehicles for your hard-earned cash.

One of the ways to enjoy the pretax savings, as well as deciding how you want to invest your retirement fund (and how much profit you want out of it) is through self-directed IRA.

According to

A Self-Directed Individual Retirement Account is an IRA that requires the account owner to make investment decisions and investments on behalf of the retirement plan.

In essence, through a self-directed IRA, you can invest your retirement fund not only on the stock market, but also on many investment opportunities, such as real estates, franchises, partnerships, and many more.

Not all investments are allowed within a self-directed IRA account, though – for example, investments in the form of life insurance or collectibles.

Nevertheless, the self-directed IRA offers you a way to grow your fund with the most yielding investment methods.

Self-directed IRA to secure your money and give you peace of minds

Choices liberate people – Freedom (with responsibility) allow people to choose what’s right for them. Therefore, this will give them the confidence and peace of minds in living their life.

With so many scare stories about people filing for personal bankruptcy or losing their life saving these days, people need ways to control their own destiny.

A self-directed IRA can offer you just that.

One caveat, though – freedom without knowledge is fragile.

In personal finance, such freedom can liberate people to invest in the most yielding or the safest investment vehicles of their choices. The choices are highly dependent on the people’s financial knowledge and personal traits about money.

Why I recommend directing your IRA to real estate

I am not a real estate expert, but I learn from experience and from the mentors I have that to achieve great riches, or at least higher yield of your investment, you need to invest when the time is bad, such as today’s recession.

I mentioned above about foreclosures ‘hunters’ and buy and rent back opportunities – those people, often negatively reputed as vultures – because they are said to benefit from other people’s misery, are actually taking the opportunities to help people getting out of debt, as well as creating wealth out of it.

This niche market in the real estate industry is flourishing today, and I, again, recommend you to direct your IRA to real estates or real estate business.

How to open a self-directed IRA

You can set up a self-directed IRA account through companies that offer you such service, such as

There are set up fee involved, but choosing the right partner can allow you set up the account fast and properly.

I recommend you to seek information on such companies, to see whether the one you want to help you set a self-directed IRA account offer more benefits than the other.

One of the benefits to look for is a company that is not only helping you set up a self-directed IRA account, but also holding real estate licenses or offering business financing to help you invest in real estates or businesses.

Do you want to secure your money and have a peace of mind? Control your retirement fund uses through a self-directed IRA account, as the real freedom is achieved if you can control your life and personal finance.

Image by respres.

Inspiring Rags to Riches Stories

New rich, or Nouveau Riche in French, refers to people who ‘made it’ from nothing to something in term of financial authority.

Stories about noveau riche are always be rags to riches stories. This wiki about Nouveau Riche explains that rags to riches stories are always be inspiring to us.

Rags to riches stories are motivational, mindset changing and focus on the end line, rather than the journey.

Example of rags to riches stories

Arguably, Bill Gates is the Nouveau Riche most prominent example.

Although his relatives are one of the most successful figures in their business and profession, Bill’s journey is not as smooth as you might have thought. A Harvard drop out, Bill with friend Paul Allen founded Microsoft, the software behemoth. Today, Bill is the richest man in US and number 3 in the world.

Bill Gates story might not interest other as he seems not ‘that rag’.

My favourite story of ‘the real’ noveau riche is that of Gurbaksh Chahal, a serial entrepreneur whose one of his businesses, BlueLithium, is acquired by Yahoo! for $300 million.

Gurbaksh is a school drop out at 16, and his parents, Indian immigrants, struggled financially for years. Today, Gurbaksh, 25 years old, has a net value of $100 million. Although not a billionaire (yet), his story is more ‘down to earth’ and might inspire people better than the Bill Gates story.

Why rags to riches stories are inspiring?

Rags to riche stories are inspiring due to:

  • Role models – they can make it, and so do you.
  • Success stories motivate people to follow the noveau riche footsteps and follow the dos and don’ts during the rags to riches journey.
  • Affirmation – positive stories create positive mindset and they are definitely suggestive. This will lead to people who are into the success stories to actually be better in their financial mindset and performance.

How to go from rags to riches?

Noveau riche main ability is to garner opportunities when they are unearthed. Consider this opportunities as gold rush, and the noveau riche is the gold mining pioneer.

Basically, the right opportunities at the right time are always present – people call this luck, I call this window of opportunity.

The most prominent way to go from rags to riches is through entrepreneurship – although professionals can achieve great success and go from rags to riches, the authorities of noveau riche are all entrepreneurs.

Business opportunities, such as this Nouveau Riche opportunities, are more likely to born new riches than not.

My favourite business opportunity is being a social entrepreneurs in South Africa – great opportunities for great minded entrepreneurs that eager to help local community to have better welfare by opening prospect business with the help of social investors.

It’s all about mindset and mentality

In going rags tor iches, resilience and perseverance is needed. 95% of people fail because they lack resilience and perseverance.

Noveau riche is all about money and minds.

Comparing Plans for Your Personal Finance Endeavour

Your personal finance always require budgeting and planning – you always want to know and prepare for your savings account, rainy day account and investment account, as well as your credit cards, insurances, mortgages and other expenses.

Now let us focus on three of the most common expenses – credit cards, insurances and mortgages.

What does credit cards, insurances and mortgages need have in common in your mind? Yes – you want to know which plans are giving the best value for you.

To know which plans are the best for you, you need to compare them – comparing plans is a necessity and often providing a sense of security having several plans on the table for you to choose.

Money plans comparison website

The best place to look for credit card, insurance and mortgage plans is finance and money related websites. is one of the financial authorities I often visit to compare plans, as well as to search for financial updates and news.

You can fulfill you need to compare mortgages, insurance quotes and credit card quotes.

The comparison itself is self-explanatory. For example, I like to compare car insurances. I found a comparison of three car insurances recommended by, along with the details, such as no claims discount and charge to pay monthly. You can always to to the insurance website directly to learn more beyond what is recommended by

To highlight – the websites also offer you five RSS feed that you can subscribe to. My favourite is personal finance news and tips, delivered to my Google Reader. Another feature that I recommend you to join is the newsletter subscription. The newsletter is a good way to stay informed on news and updates on money and money saving tips.

Comparison websites aid you plan your personal finance

Knowing which plans are the right ones for you give you an assurance of what to expect and to pursue in your personal finance planning.

If you are keen to plan your personal finance better, use not only financial comparison sites, but also shopping comparison sites and other similar sites.

I recommend you to seek authority websites only, to avoid bias and misleading information. It’s too often I found from the Internet, that the comparison site is biased, and allegedly recommend the plans that will make the site owner more money than the other plans. Although, in my opinion, this is unethical, there are actually hundreds, if not thousands, of sites offering biased comparisons – avoid those sites!

Assure yourself and plan better now.

Money Market: For People that Always Looking for Something More

It is common that people always look on ways for their money to grow more in speed and value.

While expecting their money to grow in speed and value, people always consider and weigh between risk and yield. Naturally, higher risk yields higher result. On the contrary, lower risk yield lower result.

The battle of risk and yield always present in one’s mind, and often attributed to one’s personality traits – for example, in outdoor activity, do you like bungee jumping or strolling in the park? Your answer will be one of the indicators of your risk tolerance toward investing your money.

How much do people want more?

As people always look for something more, the quantity of ‘more’ in people’s mind is widely different, depending on the personality traits, investment outlook and personal finance budgeting and planning.

There are investment instruments that allow you to choose the investment type that best suited to your situation.

Investment in stocks, mutual funds, money market, certificate of deposits, etc. along with the macroeconomic trends will determine how much you will get out of your investment.

Money market

I would like to focus on one of the most common investment option, but not many people aware the benefit of – money market.

According to Wikipedia – In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term liquid funding for the global financial system.

Normally, investing in money market by opening a money market account yield more return than the conservative saving account.

According to M&T Bank eMoney Market website, the Annual Percentage Yield (APY) of money market is 3.25 per cent, compared to the 2.25 of national savings average.

Just like other forms of investing, you can open an online money market account, such as M&T Bank eMoney Market Account.

Money market might have the right compromise between risk and yield for some person. I personally recommend money market account (and do not recommend savings account) as part of diversification in your personal finance budgeting and planning to achieve your financial goal.

Investing: Can you take the pain?

On a day at the stock market like today we almost all feel the pain. As I write this the Dow Jones Industrial Average (the Dow) is down 130 points for the day and off 450 points in the last 4 trading days. So when the value of your mutual fund or stocks are moving strongly to the down side what are you tempted to do? Sell to stop the hemorraging or buy more because of the value. Some psychological studies can tell us which way we probably lean.

Studies done in the 1970’s have shown we feel twice pain or distress for the financial loss than we feel happiness for a gain. Let us see if I can engender some pain and gain in you. Imagine you have a mutual fund account with a value of $100,000. You get your quarterly statement and the account value has fallen to $90,000, how do you feel? A little (maybe more than a little) pain there, heh? Now you open the statement and see a $10,000 gain to $110,000. Feels pretty good, but definitely not a strong as losing that $10 grand! Leave it to psychologists to figure a way to measure phychological pain and pleasure, but the double the pain makes sense to me.

So how does this affect us as investors? From the question in the first paragraph, I think when our investments start falling in value, we are strongly tempted to sell to just stop the pain. It gives us a good idea why so many investors are so good at buying high and selling low. I know personally when a stock I have invested in goes down I start to mistrust my judgement and search the news for clues I might have missed that this was a bad investment. Doing this research will, hopefully, help me hang on to good investments when the overall market does not think much of them.

One last point we need to remember so we do not let the pain of less lead us to the poor house. A recent article submitted to Seeking Alpha did a pain vs. gain calculation. First, the average return of small cap stocks over the last 60 years is 16.3% per year and the average return for large cap stocks is 12.76%. The author used monthly returns to record a positive point for each percentage of positive months and 2 negative points for each percent negative return in negative months. The more volatile small cap stocks racked up a score of minus 788 (-788) points even as an investment would have grown to 13 times the original investment (using rule of 72). The steader large cap still gave us minus 482 (-482) pain points in spite of a 10 fold gain.

Bottom line: If you want to be a stock market investor, you must figure out a way to handle the negative emotions of negative returns. Markets go up and down, but the research shows it is much harder for us to live with the down part.

Why does negativity sell?

This is a rant and a question about something that really bugs me. I spend quite a bit of time reading financial news, primarily on the Internet, and I am struck by how much writers and commenters wish for bad economic news, the worse the better. It is a widely accepted belief that if you want to start a successful paid financial blog or website it is better to concentrate on a negative subject.

Many times an article with a positive slant on the economy or job statistics or the housing market will be followed with numerous comments proclaiming the sector involved is in the middle of a deep recession that will last for years, decades, forever, etc. Here are some of the more virulent topics, first, with what I see as factual, followed by some common perceptions:

  • U.S. economic recession: Although government statistics show the economy is still growing, although at a slow rate and the historical average recession lasts 6 to 9 months many Internet opinions put us well into a deep recession that will last for many years.
  • Worldwide economic recession: Economic growth is healthy in most parts of the world with strongly growing economies in most regions. Again, however, many expounding on the Internet are convinced the U.S. ‘monster’ recession will drive the rest of the globe into recession or vice-versa.
  • Sub-prime credit crisis: The failure of the sub-prime mortgage market has hit many financial institutions hard and has caused a real recession in the housing market. Reading the internet and following the financial stocks would have one believe no bank will ever make a profit again or even survive.
  • Inflation/Stagflation: Rising commodity prices, especially oil, have caused many prices to increase. Many in the Internet world do not believe any government statistic on inflation and fear U.S. monetary policy will drive us deeper into the multi-year, multi-decade recession they are all wishing for. Or so it appears if you read enough of this stuff!
  • Housing market: From about 2002 until near the end of 2006 real estate prices and new home sales shot up at unprecedented rates. Since 2006 home prices have generally fallen and home building has been severely curtailed. Now home building rates and prices are back to somewhere around the 2002-2003 levels. Internet pundits keep comparing their data to one year ago or peak rates and project the current slow down all the way to zero. Many I read will not be happy until everyone’s home is worth $1,000.

This type of stuff really bugs me. First, of all I am a positive guy and want to make money by investing in positive ideas. An investment that goes up in value is positive. I do not see the value of all of the negative prognostication, especially on finance/investment internet sites. Excepting of course, the financial sites pushing this stuff and making some serious coin! Second, I have been watching financial news a long time, and everything goes in cycles, especially herd mentality and stupidity. And the herd includes everyone from bank CEOs to Wall Street numbers geeks to your neighbor getting-rich-on-investment-real-estate-with-no-money-down until it all collapses. The long term trend of economies and markets and real estate are to grow in value, but these are not straight line trends. There are many ups and downs along the way. As an investor, I want to find the places in the trends where I can make more money than putting my cash in the bank or T-bills. Projections of impending or current doom and collapse do me no good.

So my question again is: What is the appeal of all of the negative financial scenarios in the news? Why aren’t more people interested in stories that show them where things are positive and there are money making opportunities? Or are the positive money makers happy with their lot, and leave the doom pounding to those without the ability to find positive investment stories to help them make money? I look forward to reading any comments on this subject.

Investment perspective redux

“We’re putting all our spare cash into the stock market right now,” my coworker M said to me not long ago. “I figure that it’s cheap to buy right now, and prices are bound to go up.”

“We had twelve thousand dollars in the stock market,” my friend J said to me not long ago. “Then when everything came down it was ten. Now it’s back up to eleven. But we’re sure not doing anything with stocks until it gets back up to twelve at least. We can’t afford it.”

There are differences between M and J, of course–one is that M is in a household with two good incomes and J is in a household with (temporarily) one fair one–but they also have different perspectives on investing. Following up on Tim’s post, different people can look at the same world situation–a depressed stock market in which prices which had been rising have fallen and are slowly climbing again–and have radically different reactions.

As Tim said, the price you pay or how you feel about an investment doesn’t affect its outcome–but it does affect yours. Buying stocks cheaply now may well be a good move; but even if J had the money, she probably wouldn’t do it because she’s risk-averse and has just suffered a loss, which increases her risk aversion. M, on the other hand, is relatively risk-loving. If both of them were given the same opportunity–for example, the chance to buy stock in a company being touted as the next Google–chances are that they would react differently, even if they have the same information about the market and the absolute risk, based on their investment styles and their previous experiences.

It’s worth considering whether your previous experiences are coloring your thinking when it comes to investing. Maybe you lost money recently in your portfolio. (Chances are you did; most people have.) That doesn’t mean you’re going to lose money if you make another investment. It doesn’t mean you’ll make it, either, of course. It all depends on the market and world events; but not, as Tim said, on your action or your personal history.

What is your investment perspective?

This website is devoted to understanding how our cognitive illusions affect us when we make decisions concerning money. We all view the world from our own unique frame of reference, and when our view causes analytical inaccuracies we call that a cognitive illusion or bias. Or and an old friend put it; our “stinkin’ thinkin’ is erroneous!

Today I want to show a few examples of how our perspective can change how we see our investments and maybe some errors we can guard against. Let me throw out a few examples.

  • First, an easy one: Every time a stock is traded, the buyer believes the stock will go up, but the seller does not. Different perspectives!
  • Imagine yesterday you bought stock XYZ for $20 per share, today you look up the share price and it is trading for $30 per share, and 50% gain in one day. How do you feel?
  • Another scenario: A month ago you bought XYZ for $40 per share, today it is $30 and you have lost 25% of your investment. How does that make you feel?
  • Scenario, Part III: Yesterday, you got fed up with your holdings in XYZ to do anything and you sold it all for $20 per share. Today the stock is going for $30. How do you feel?

In all of the cases above, XYZ is $30 per share but your feelings about that share price are completely different. The difference is your perspective based on your purchase or sale price.

The point I am trying to make is that the market does not know or care at what price we bought a particular investment. Our perspective, however, controls how we believe the market should go based on the price we paid. We have thoughts like: My investment is down, I just want to get back to even before I sell. OR This investment has doubled for me, so I want to buy more and do it again. This type of investment thinking has no correlation with where the investment will actually go from here.

Important Thought: The price you paid for an investment has absolutely no bearing on where it is going from here! The market for that particular investment is completely separated from your buy and sell decisions once you have acted to buy or sell.

If you want to manage your own investing, be it stocks, mutual funds, real estate or ostrich farms you need to analyze your holdings or prospective holdings on current market conditions. Once you have bought or sold something, that event is done and has no bearing for the future of your portfolio. I hope this information helps you with your personal investment analysis!

Your investment decisions can have global effects

If you could choose only one, would you choose to (a) save a thousand people in a foreign country from dying in an earthquake, (b) save a hundred people in your home town (but that you don’t know) from dying in a plane crash, or (c) save your best friend from dying in a car accident?

Most people will answer (c), and will choose (b) over (a). (Up the ante by changing “your best friend” to “your child” and all but the most Vulcan-like among us will answer c.) You could call it egoism–the view that humans always act based on rational self-interest–or emotionally-motivated behavior or just plain selfishness; but given the choice, people almost always choose to do what benefits them, even at the detriment of other people, especially if those other people are distant strangers.

This is healthy human behavior; we value what we have and what we know, and we act to protect what we value. Rationally, however, if we assume that human life in general is valuable, we know that (a) is the most logical choice. Most of us don’t worry too much about this, since saving one’s best friend from death is pretty big, and after all, it’s just a hypothetical dilemma.

Now let’s talk about the food crisis. Chances are you’ve heard that food prices are rising and seen it for yourself. There are a number of factors causing the higher prices: increased demand, low reserves, the weak dollar, the high price of oil…and speculators. This Washington Times article describes how investors are putting money into futures markets for corn, wheat, and rice (among other things), which actually drives prices higher.

Speculators have always played a prominent role in commodities markets, but in the past year, they have literally overwhelmed them, causing a dramatic increase in trading volume, volatility and prices and disrupting many of the normal relationships between producers and end-users.

…As with the credit bubble before it, the explosion in commodities prices has its origins in a global savings glut and massive trade imbalances…The difference this time, however, is that even before it bursts, this bubble is causing economic discomfort for households and businesses around the world, and misery for hundreds of millions of hungry people who suddenly cannot afford a bowl of rice or scrap of meat.

Generally speaking, your financial decisions affect you, your family, and maybe a corporation’s profit margin or a stock broker’s bonus. But this is a new twist in financial decision making, where deciding to make some money could mean making a family just like yours–even if it’s on the other side of the world–go hungry.

If you could choose only one, would you choose to (a) feed a hundred starving people in India, (b) feed ten hungry people in your home town, or (c) make a little extra money off the stock market?

Choosing to invest in the stock market, even in the commodities market, won’t directly bring you to that choice, of course. But it’s true that thanks to our truly global economy, your financial decisions can now truly affect people in foreign countries. What would you choose?

Do you want status or money?

For the Brain, Cash Is Good, Status Is Better

The article linked above has some very interesting results of a pair of tests researching which parts of our brains are concerned with earning or losing money and our reputations. The unexpected, and interesting, results of the studies revealed humans process making money and increasing our social status in the same area of the brain!

The area of the brain called the striatum had previously been identified as the brain’s monetary reward center. These new studies show the striatum is also where we process social values. This means having a good reputation affects our thinking in the same way as earning money. The studies further revealed that improving our reputation has priority over earning money in the straitum. So the answer to the title question of this post is that our brain functions to prefer status over money!

I can think of several ways this effect shows up in our lives:

  • An improved job title will often satisfy us more than getting a raise. We want our reputation and job description to show our status in life and will forgo more money.
  • A smart employer will understand that an employee’s status and reputation may have higher priority than actual income (within reason!). Employers should make sure employees are recognized in a public way for there contributions.
  • This characteristic can be dangerous in our financial decision making. Are we electing to make or avoid a financial decision because of how we think it affects our reputation? Or how it will affect us financially? This can apply to many areas: buying a home, making an investment, choosing an advisor, and even making everyday purchases.
  • This information may explain why we will pay significantly more money for similar items because of the brand or store.

Now that you are aware that your brain process your reputation and earning money in the same brain region, try to be cognizant of your financial decisions. Are you making them to improve or maintain your status, or to improve your net worth?

Do Trading Systems Work?

Spend any time on the Internet researching investment ideas and you are going to run across myriads of websites trying to sell you their program, book or advice to trade stocks, options, commodities or currencies. Type a phrase into Google similar to the following: “options trading”, “commodity trading” or “Forex trading” and you will get an untold number of hits promising you easy riches of you just buy and follow their trading program.

The websites promoting these programs do an excellent job of feeding our biases and disrupting the critical thinking process. One example is, which provides an account for simulated forex capital markets and online training resources. For me the strongest bias I fell when reading the ads is the self fulfilling prophecy. The idea is there has to be a program out there that can make it easy for the novice to build enough knowledge to have the confidence to risk their hard earned money.

There are many ways to make (and lose!) money in the market and short term trading is one of them. Trading hits us with the promise of quick wealth, while many of the other ways take time and discipline. The truth is, learning to be a profitable trader also takes a lot of time and discipline. The successful traders I know of spent many years learning their profession and are very disciplined about their approach. The successful trader has developed his own personal system that works for him. Trading is a very individual pursuit and the herd instinct eventually leads many to crashing the market (think about housing) as more and more investors pile onto the same trading strategy. Remember the professional trader from the French bank, Société Générale, who lost his employer over $7 billion making “safe” currency trades.

The answer to the headline question is No, but with reservations. Each of us must find an investment philosophy and style that fits our personality, from buy and hold blue chip stocks or broad based mutual funds to trading coffee futures in the CBOT pits. If you decide being a “trader” is something to pursue remember these few things:

  1. No trading system will work as well in the future as it did in the past.
  2. No one can predict the future.
  3. Do not use leverage. When someone goes completely broke, it is almost always because they used borrowed money.
  4. Don’t let anyone make your decisions.
  5. Don’t ever do anything you do not completely understand.
  6. Speculate only with money you can afford to use.

Thanks to Thomas Smiklas and his excellent investing blog for the above rules.

To be an investor that beats the professional money managers is an individual pursuit. It takes time, study, dedication and effort. Even then results are not guaranteed. It is easy to let our biases color our beliefs about our investment abilities and the best tool is to know ourselves well.

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