"Self Direction" can create Sustained Abundance for You!

"Self Direction" means that you analyze and select your own investments yourself.  Making your own decisions also means responsibility for the results of those decisions. This ultimate responsibility can make the decision to Self Direct a difficult one. Perhaps a better question might be; What kinds of returns can I expect if I passively allow others to direct my investments for me?

The rates of return you get by Self Direction are based on the type of investments you make, the level of risk you choose to accept, the amount of money you invest and usually, the time frame for the investment.  The less time your assets have to perform, the higher the rates of return need to be to reach your goals.  The higher the rate of return, the more implied risk in the investment.

When it comes to retirement, people are usually far more concerned about the return of their money than the return on their money.  The fear of loss has a tendency to overcome the willingness to accept risk. As a result, many of us give the control of our money to someone else who may or may not have our best interests at heart and no risk of personal loss if the investments they select for us under perform. 

Some of us place assets ourselves in so called "no-risk" investments like Certificates of Deposit or U.S. Government Debt Obligation like Savings Bonds or Treasury Bills.  These kinds of investments need lots of time and consistent maximum contributions in a retirement plan to produce desirable results after retirement.  Only a tiny young, highly compensated, healthy and able to work segment of our society will get acceptable results from this approach over time, except for those willing to accept a much lower standard of living in order to retire.

Why the "Rule of 72" is so important

The "Rule of 72" says that you can divide 72 by the rate of return on an investment to determine how long it takes that investment to double. The kinds of "safe" investments mentioned above yield 2-4%.  This means that you will need 36 years at 2% for your money to double.  At a 15% rate of return, your money doubles in 4.8 years.

It takes much more work and personal involvement to find reasonably safe investments that will consistently yield 15%.  In the current environment, distressed real estate, real estate notes and tax liens on real estate can all produce returns in this range, but you must work very hard to find them.

Whenever you use a "go-between" (broker, insurance agent or financial planner) to place your investments there will be a cost that is typically more than the cost of pure self direction.  After all everyone, including your financial advisors have the need to make a living and someone must pay for that living.

The easy to find, no effort involved investments that appear to have all due diligence completed for you will not show 15% cash on cash returns because the person showing them to you wants to get paid first along with everyone up the food chain from him/her.  Again this is normal. 

In order to get higher returns you will have to dig much harder, bargain much harder and be prepared to walk away if your terms are not met.  You also need to be prepared with cash and understand how much of your cash can be prudently used to gain the returns you seek.

Fighting our own Nature

Human nature seems to want to ignore or deny the need for retirement planning or long term investing in general. Let's face it, it is a lot more fun to enjoy ourselves now and live in the moment than to think of reducing our lifestyle today to save for an uncertain tomorrow.  The savings rate in this country peaked around 1975 and dropped below zero about 2005.  This means that there are large numbers of us in the category of "living for the moment". 

As time goes by and we fail to plan, we are in fact increasing the probability that we are planning to fail (failure with respect to retirement means not having enough income to stop working, assuming that your health allows you to keep working). Except for the occasional lottery win, a financially lucky marriage, accidental investments in the right start up technology company or a sudden inheritance, there is nothing to magically help those who fail to plan.

If you have reached the point where you realize that you must start investing the personal energy, time and risking the dollars necessary to change your financial future at retirement, Self Direction of your retirement plan could very well make the difference.  The very act of accepting this responsibility will open wide the possibilities for more success.

Be prepared to learn new things and abandon old ideas.  Be prepared for some pain and of course for the pleasure of seeing the fruits of your new labors.  Sustained Abundance surrounds all of us and especially those who open their hearts and minds to it.