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06/07/09
Investors empty 401(k)s to take control of their money
Filed under: General, Finance
Posted by: Lillian Wong @ 3:17 pm

Tired of watching his 401(k) vanish like a mirage, Ed Sandidge pulled $50,000 from his account in March and invested it in real estate, betting that the long-term play in Buckeye’s housing market would pay off more than the stock market.

Sandidge, president of Scottsdale financial firm Edward Sandidge & Associates, has lost more than $250,000 from his 401(k) since September — more than half its savings.

“I just got tired of watching my money disappear,” he said.

More investors are pulling money from their individual retirement accounts and 401(k)s and investing in alternative assets such as real estate, oil and gas refineries, private businesses and precious metals.

The stock market crash in 2008 — which saw the Dow Jones Industrial Average sink 32 percent and the Nasdaq nearly 41 percent — cracked millions of nest eggs, prompting investors to trade some of their stake in the equity markets for illiquid assets, either through their employer-offered retirement plans or by establishing self-directed accounts.

“People just want more choices,” said J.P. Dadhah, president of Entrust Arizona LLC, which provides retirement plan administration and recordkeeping services for individuals and small-business owners who want to invest in nontraditional assets.

The Scottsdale firm administers more than $250 million in retirement plan assets, and its client list of 2,500 continues to grow.

Under federal law, individuals cannot administer their own retirement accounts, so approved custodians such as Entrust Arizona are in demand as the stock market remains volatile, despite gains in the past two months.

Entrust charges a one-time account setup fee of $50, then $250 for every asset held and a $95 fee when a client buys or sells an asset.

Real estate is the preferred alternative investment, especially in Phoenix. It has made uneducated investors millions, but its perils have been just as well-publicized. Skimming through unemployment reports and bankruptcy and foreclosure listings tells that story. When the real estate market tanks here, so does the economy.

Nevertheless, it remains an attractive alternative, especially if you have staying power.

Barbara Mackerman can attest to that. In April 2008, she purchased a 2,200-square-foot, four-bedroom home in Mesa for $110,000 –– paid for entirely with cash she pulled from her IRA.

Given Wall Street’s collapse shortly after that investment, Mackerman likely will turn a nice profit when the housing market recovers. For now, she’s renting out the property for $1,450 a month.

“I think we made the right decision at the right time,” said Mackerman, director of finance at Sunrise Health and Hospice in Gilbert. “In the long run, we might be further ahead because of what’s happened to the stock market. Time will tell.”

Valley companies that offer alternative investments say business is up, especially since the stock market tumbled, obliterating millions of retirement plans in a matter of months.

More than $1 million a day is traded at Swiss America Trading Co., which buys and sells coins, gold, silver, and other precious metals. Senior portfolio manager Richard Cromwell said the Phoenix firm has seen IRA contributions and volume triple in the past few years.

“This gives you an opportunity to control your investment,” said Cromwell. “I believe self-directed IRAs will be the wave of the future.”

Swiss America manages more than $1 billion in assets for more than 40,000 clients.

For decades, advisers and investment firms touted the stock market as the premier outlet for investing 401(k)s and IRAs, while trusts avoided the illiquidity of private-sector investments. But that sentiment is changing in the wake of Wall Street’s historic collapse, which buried some of the nation’s largest financial firms — and countless retirement dreams. Trusts are taking a more entrepreneurial position now.

“People are very quickly learning there is risk in all levels of investing,” said Glen Hinshaw, managing partner of HSL Financial Group LLC.

The Scottsdale investment firm manages the HSL Fund, which invests in small, private businesses with proven models. The private equity fund has more than 20 accredited investors with more than $1 million in net worth.

“We only invest in businesses we know,” Hinshaw said. “A lot of wealth is still sitting in small business.”

Get Connected

Entrust Arizona LLC: www.entrustarizona.com

Swiss America Trading Co.: www.swissamerica.com

Phoenix Business Journal - by Chris Casacchia Friday, June 5, 2009


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