Speak with a Broad specialist:
(800) 395-5200Schedule a CallOpen an Account
Speak with a Broad specialist:
(800) 395-5200Schedule a CallOpen an Account

August 21, 2012

Black Swans, Dangerous Streets, and the Rise of the Self Directed IRA

Ready Player One

You’re staring at the screen. The words pop up, and your pulse begins to make a move north. “You must avoid the Black Swan at all costs. Failure to anticipate the arrival of the Black Swan can lead to irrevocable losses.” Your fingers begin flying at the keys. The controls are wonky, and it’s hard to steer. Instead you run straight down the street. First you stop by a Blue Chip and then you sprint to the door of a Tech. You tap at a sidebar to access a quick inventory. Result: still viable but losing momentum. “Warning! You must get off the Street!” Get off the Street? There are no options to get off the Street! The blue time bar is quickly diminishing and hitting the Pause key has no visible effect. You can feel the heat emanating from your computer, and a migraine is beginning to rumble in the back of your head. You don’t even like computer games. What are you doing here?

Ready Player Two

There are very intelligent people who are self-effacing, down-to-earth, and charismatic in small town kind of way. Then there’s Nassim Taleb. A prolific author who has served as a hedge fund manager, Wall Street trader, and scientific advisor, he presents as the epitome of the cultured intellectual elite. He’s not somebody you would imagine with a red Solo cup. Why Mr. Taleb matters to those of who have indulged in the luxury of brightly colored plastic is due to his recent paper concerning the practical nature of the contemporary market. Entitled “Why It Is No Longer a Good Idea to Be in The Investment Industry” (https://www.fooledbyrandomness.com/spurioustail.pdf), the paper explains the current trends in investing success as being due to luck which are then later rationalized to have some kind of meaning. The paper is short, but it helps if you’re a statistician to really get it. For our purposes, the message is clear. Betting one’s IRA on a star manager’s past performance is not necessarily a good idea. Randomness, and the ensuing public opinion, has too decisive an effect to insure positive results. Which, of course, leaves you with a problem. If the authoritative narrator in his deep booming voice is telling you to get off the Street, then what are your available options? The easiest one is to make a beeline to assets that you understand. Maybe you have a feel for hard coding, industrial real estate, or even what would make for a successful tattoo parlor. In any case, that’s where you should be looking to place your retirement funds. The vehicle for accomplishing that placement is called a self-directed IRA. It allows you to take your funds from standard market assets and put them into areas that you know and understand.

Player One – Reboot

You stare at the screen as your fingers hover above the keys, but you’re stuck. As much as you want to get off the Street, there seem to be no options available. Suddenly a wizened middle-aged man in a crisp suit pops out from behind a Starbucks. He has his back to you and makes a gesture with his hand. “Follow me.” You don’t need to be asked twice. You follow him off the Street, and suddenly you find yourself on a well-populated avenue. In front of you is a map with an arrow that you can move. You realize that this is the Arrow of Destiny. You call out to your guide to say thank you, and as he turns your breath catches. The face he is wearing is yours. He smiles at your momentary gasp, and then puts out a welcoming hand. “So where is our Arrow pointing?”


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