002: The REAL Dangers of Retirement Accounts & The Power of Diversified Real Estate Investing!
Traditional Retirement Accounts: IRAs & 401ks
Where we left off, we were touching on IRAs, 401ks, and traditional retirement accounts. These vehicles are generally blindly adopted and misguided. It's a short-term solution for a long-term problem. The allure is you can put a significant amount of money into a retirement account, avoid taxes this year, and then pay taxes on the growth later. The general thought is that you'll be in a lower tax bracket later and thus pay a smaller percentage of taxes on that growth over time. But who's to say if that will happen? The odds of tax brackets going up over time is almost assured. The government is unlikely to decrease the percentage of taxes within each tax bracket significantly. Essentially, you're partnering with the government on your retirement savings, which I personally find undesirable.
Self-Directed IRAs
Many are ignorant to the options available with retirement accounts. One such option is self-directed IRAs. A common misconception is that traditional IRAs only allow stock market investments. However, through self-directed IRA custodians, you gain more control. Though there are limitations – for instance, you can't loan the money to a family member or invest it in your primary residence – you can invest in assets like rental properties or syndications.
Diversification Debate
Warren Buffett's Perspective
Diversification is often hyped up. Warren Buffett, the world's most renowned value investor, advocates for investing in widely diversified index funds, particularly for those who don't spend their days analyzing financial reports as he does. Yet, he's also been quoted saying wide diversification is only required when investors don't know what they're doing.
Real Estate Investment
In the realm of real estate, especially syndicated real estate, there's great potential for strategic diversification. Active real estate investing can limit diversification, but syndications can offer diversification across asset types, be it single-family rentals, self-storage units, multi-family properties, or industrial buildings.
Income Streams and Risk
Relying on a single stream of income, like a W-2 job, is risky. Many place their investment money in IRAs and 401ks, which they can't touch without hefty penalties until age 59½. If they lose their job, their financial stability is jeopardized. Contrastingly, having multiple passive income streams provides a safety net. If one income source dries up, others can sustain you. Just as life insurance provides security for one's family in the event of their passing, these income streams can offer financial security.
Abundance Mindset
Lastly, it's crucial to recognize the abundance around us. Don't let fear prevent you from seizing opportunities. There are countless deals and investments out there. Everyone has the potential to achieve their financial goals with the right mindset and strategy. It's easy to get trapped in a mindset of scarcity, believing there's not enough to go around or that opportunities are limited. But in reality, with the right mindset and strategies, there is a vast world of financial possibilities available to anyone willing to look for them and take the necessary steps.
Determination and Mindset
It's not just about having the right information, but also the determination and mindset to act on it. Financial freedom doesn't happen overnight. It requires diligence, patience, and sometimes making choices that may feel uncomfortable in the short term but will lead to long-term success.
Educate Yourself
To truly achieve financial freedom, it's essential to educate oneself. This doesn't mean you need a formal education or a degree in finance, but you should be proactive in seeking out knowledge. There are countless resources available, from books to online courses, seminars, and even podcasts. Take advantage of these resources, and never stop learning.
Networking
Networking is another crucial aspect of financial success. The old saying, "It's not what you know, but who you know," holds a lot of truth. Surround yourself with successful and like-minded individuals. They can provide guidance, opportunities, and even potential partnerships that can propel you towards your goals faster.
Closing Thoughts
In conclusion, it's important to approach your financial journey with an abundance mindset. Recognize that while there may be challenges along the way, the opportunities are endless for those willing to seek them out and act upon them. Remember that every journey starts with a single step, and the best time to start is now.
Thank you for tuning into the "Good At Money with Josh Walker" podcast. If you've found value in this episode, please share it with others, and don't forget to subscribe for more insights and discussions on financial freedom. Until next time, keep pushing forward towards your financial goals.