Personal Empowerment for Personal Finance for Self-Directed IRAs

A lot of skills in life require the empowerment that comes from learning and practice: basketball, riding the subway in New York City, ordering sushi, and, as it turns out, making financial moves.  In 2008, like a lot of other people with retirement accounts invested in public securities, my friend Willie failed to listen to his intuition and incurred a financial beating.  How did this happen?  The answer is that he had a lack of agency when it came to his finances.  Financial forms are intimidating.  Planning for the future can seem unimportant in the present.  And managing numbers on a page can seem ethereal to the point of being absurd.   These forces can conspire to debilitate a person.

At that time in ’08, Willie had a 401(k) account and a 457 account.  They were both invested in a variety of publicly traded stocks and bonds etc.  His retirement account provider had offered several packages based on an individual’s risk tolerance from which to choose.  He had chosen the most aggressive option.  At the beginning of the 2008 stock market slide, Willie decided he wanted to take some money out of his 457 (which he could do without penalty because he no longer worked for that employer).  As he monitored his account value for the best time to withdraw the money, he told me that he had a strong intuition to move his 401(k) from the very aggressive, high risk category to the not aggressive, low risk category.  A move like this would cost him almost nothing, and he could move the funds back at any point if he wanted to.  BUT HE DIDN’T DO IT!  He went as far as calling his provider and asking about the process, “What are the forms? etc.” A short time later Willie’s 401(k) was a shadow of its former self.  He lost approximately 50% of his account.  If he had made the move, we calculated later, he would have lost less than 10%!  And if Willie had known about a self-directed IRA and rolled over his 401(k), he might very well have grown his retirement funds using assets like real estate or precious metals and not lost at all.

The bottom line is that in 2008, Willie balked at a time when he needed to act.  It wasn’t for lack of motivation.  It was for lack of empowerment.  I can’t stress enough how important it is to empower yourself when it comes to financial strategies and processes.  To combat the temptation of inaction, Willie and I came up with two important strategies.  The first strategy was to learn enough about finances to feel in command of them.  Despite being a reasonably sharp person, Willie did not really know much about the assets in which he was invested.  Also, he was unaware of what the alternatives were.  He had no clue that his retirement funds could be invested in anything other than the stock market. The second strategy was practicing moving his money around.  Willie would have been well served by making a few low cost moves in his account, even if they cost some money, to practice.  It is like getting that first small dent in a new car.  It hurts, but it changes the car from an object of reverence and over protection to a vehicle with which one has a relationship.  It seems likely that different people may need more and/or different strategies as well to put them in a position to take the reins of their finances.  Whatever that is, it is worth it.  Learn, practice, whatever it takes, but don’t be caught without the agency to act on your own behalf.