What is a “Modern IRA”?
The term “Modern IRA,” or “Modern Retirement Plan,” came from realizing one thing: The investment strategies and investments in today’s portfolios are basically identical to portfolios I looked at fifteen to twenty years ago. Well, a lot has changed in the past fifteen years, but our investment strategies apparently have not. This, combined with the fact that almost every form of retirement plan is converted to an IRA or individual retirement account at some point, led to the term “Modern IRA”.
The real return or compound inflation adjusted return for the S&P 500 index is -.54% from 1999-2010. This index return does not reflect mutual fund fees, commissions, management or advisory fees. This combined with the fact that most funds do not beat the S&P 500 index translates to a grim reality. The vast majority of investors have not made any money over the past twelve years. Traditional investment advice needs a kick in the pants.
Think about your investment goals for a moment. Your real goal is to grow your retirement plan, no matter what happens to the stock or bond market. No one says, “I only want to grow my retirement plan if the stock and bond markets have a great twenty-year run.” In truth, the performance of the stock market, or any market for that matter, has nothing to do with your real goals. Your real goal is to get ahead even if the stock market suffers a prolonged period of lower-than-average returns. Investors and retirement plan owners need a blueprint or plan for getting the best out of both traditional and alternative investments.
Our portfolios should reflect our real goals, but they don’t. Today’s portfolios need to be structured to get every advantage we can, and discard old ways of doing things that get in the way of our real investment goals. We need to “modernize” our IRAs and retirement plans so that they reflect our real goals and get every advantage we can to help us achieve our goals.
What characteristics does a Modern IRA have?
- No fees or 25 basis point fees on bonds or bond fund holdings –see article on Bonds,bond funds and Fees to learn why this is so important.
- No fees or 25 basis point fees on long-term holding or commodity-based investments like index funds and mutual funds. See the blog post “Marking up the market” for more.
- Use alternative assets with limited fees, and use enough to make a difference (30% to 50% of your portfolio in most cases). We use specialists to do the things we can’t or don’t want to do ourselves.
- Portfolio is structured to address our real investment goals of getting ahead in both good markets and bad. The 1990s and 2000s provide an example of the two extremes. We don’t want to be dependent on any one market or investment strategy for our returns.
Traditional portfolios do not have these features. In the past, everyday investors did not have access to alternative investments and paid advisory fees on their entire portfolio even when it didn’t make sense. We have a lot more information on funds and market performance, and more investment options than ever before in 2011. We can do better than traditional portfolios and bring our IRAs, retirement plans and portfolios up to date, and greatly increase the odds of hitting our investment and retirement goals.
Please sign up for the RSS feed to get new articles and information on managing your IRA and retirement plan better. You can also download any chapter from Less Risk, More Return from the home page, www.lessriskmorereturn.com. If you have investment question, you can use the “Ask the Author” section, and if we use your question for a blog topic you will receive a $25 gift certificate to Amazon.com.