What the events of the past couple of weeks have reiterated is that others may be in control of many aspects of our lives. Your retirement is one of those aspects. The recent financial upheaval caused by a massive IT outage involving cybersecurity software CrowdStrike highlights a critical vulnerability in the stock market, shaking the confidence of many American investors.
This event, triggered by the cybersecurity firm’s software glitch, led to worldwide outages affecting everything from airports to banks. The stock market plummeted as a result, causing significant losses in stock value. Institutional investing giants like BlackRock and Vanguard were major investors in BlackRock, so any investors with 401(k)s and IRAs tied to these firms saw big losses, underscoring the fragility of entrusting retirement savings to institutional giants or the stock market in general.
The Fragility of Stocks
On a single day, CrowdStrike’s stock plummeted over 11%, erasing a staggering $9 billion in wealth primarily held by institutional investors. This dramatic loss vividly illustrates the peril of relying on stocks controlled by large investment firms that manage the majority of American retirement accounts.
Historical Precedents and Ongoing Risks
The volatility witnessed in recent events isn’t new and echoes past financial crises like the dot-com bubble, the Financial Crisis, and the early days of COVID. These historical failures serve as stark reminders of the recurring threats to retirement savings when invested in traditional stock market vehicles.
Real Estate: The Antidote to Uncertainty
In contrast to stocks, real estate offers stability and consistent returns. It’s one asset insulated from stock market wildfires that can be triggered in an instant by IT failures, economic crises, natural disasters, and geopolitical unrest.
Besides, real estate offers advantages stocks fail to provide, including:
- Steady and predictable cash flow. CRE has outperformed the S&P 500 over a 25-year period, but at reduced risk.
- Long-term appreciation. Real estate has intrinsic value from its cash-flowing nature and, as a result, appreciates over time in addition to appreciation due to inflation.
- Tax benefits. Real estate offers a number of tax advantages not available with stocks. Besides depreciation; renovations, repairs, and other associated expenses involving upkeep are all tax-deductible.
- Protection against inflation and recession. Whereas stocks are highly liquid and subject to the whims of the market and extreme market volatility, real estate is illiquid and insulated from broader market volatility. Real estate income streams are more stable because rents are often secured by long-term lease contracts that not only provide stability and predictability but that can be adjusted to reflect inflation.
These attributes make real estate an appealing alternative for safeguarding retirement savings from the unpredictable swings of the stock market.
The Case for Self-Directed Investments
The traditional reliance on 401(k)s and IRAs managed by others often results in underperformance and unnecessary fees. As a whole, 78–97% of actively managed stock funds failed to beat the indexes they were benchmarked against over ten years.
Take control of your investments while taking advantage of the tax benefits of 401(k)s and IRAs that allow you to invest pre-tax dollars or, in the case of Roth options, withdraw tax-free from investing post-tax dollars. Either way, self-directed retirement accounts empower investors to take control of their financial futures by allowing investments in alternatives, like tangible assets like real estate. These accounts not only offer tax advantages but also eliminate management fees associated with traditional retirement funds while avoiding the volatility of the stock market.
Choosing Real Assets Over Market Volatility
In a world increasingly susceptible to market turbulence and external shocks, self-directed IRAs and solo 401(k)s provide a strategic advantage. By diversifying into real estate, investors can mitigate risks associated with stock market volatility while optimizing tax benefits.
The recent IT outage and geopolitical upheavals serve as a wake-up call for investors everywhere. It’s a stark reminder of the fragility of stocks and the advantages of diversifying into tangible assets like real estate. The path to financial security lies in taking charge of one’s investments and steering clear of the volatility and unpredictability of traditional stock markets controlled by institutional elites.
If the world feels like it’s spiraling out of control, understand that the stock market is highly correlated and susceptible to catastrophic events.
As the financial landscape continues to blur, the imperative to take control of one’s investments grows stronger. Real estate has consistently stood out as a resilient asset class capable of weathering economic uncertainties that often disrupt traditional stock markets and traditional retirement vehicles like 401(k)s and mutual funds.
