Or, if I only knew then what I know now...

Recently while surfing the net I came across a well written blog by a "thirtysomething" on "Financial Commandments for Your Thirties" that brings home to me the slow spread of a new paradigm among younger generations about money. Namely that there are good reasons to carefully manage it and to save it for the future and specifically that "Debt is not Wealth".

As a Baby Boomer I was very happy to see this viewpoint expressed and I realize that younger generations may have a better grasp of financial reality than mine at that age. This realization was reinforced when I recently held an open house (one of my hats is as a Realtor in CA for a Broker specializing in Bank owned (REO) properties). A group of young people came in to see an REO property in a popular suburban development featuring a man made lake.  Properties in the area had a high pricing premium before the bubble burst and a have a high monthly Home Owners Association (HOA) fee for the privilege of living there now.

The property I was showing was close to $800k at the peak of the CA bubble and is currently listed at closer to $500k by the bank that owns it. The home fills the lot with about 8-10 feet on either side, an alley in the back for access to the garage with no driveway and a postage stamp lawn in a courtyard like front yard. It is a nicely finished, 2600sf home, but the young people (engineers and professionals) did not stay long and commented that even at $500k the house was way overpriced and they were seeking to pay cash and get something with real value and without the ongoing HOA fees. Although they did not buy my property, I was happy to witness the intensity of their belief and welcome the rebirth of thrift in younger Americans. 

One topic that was not mentioned in the Financial Commandments was tax deferred savings in a Self Directed IRA, so I made the following comment on the Blog:

While you described a traditional IRA well, you forgot to mention the growing use of truly Self Directed retirement plans. As far as IRA’s are concerned, the IRS only excludes investments in Collectibles like art and fine wine, life insurance contracts and shares in an S Corp from an IRA account. The traditional investment community limits the investments in IRA’s they offer to the products they earn a commission on. Most of the time, this rules out investments in anything other than stocks, bonds and insurance in various forms. The plan documents approved by the IRS for a truly Self Directed IRA include the options for investments in real estate of all kinds, precious metals, tax liens and both secured and unsecured notes. One place you can get oodles of free information on this type of IRA is at http://www.cencal.entrustcalifornia.com/. You should do a follow up post to your readers and make them aware of this option!

If you are in your thirties, you have time to really accumulate assets in a Self Directed IRA or other Self Directed retirement vehicle. In the current financial environment, savvy mature investors are loading up on hard assets like real estate and precious metals. Many view the purchase of a small investment property at the right price as something they can control directly without fear of market manipulation and with stable, predictable returns.