Suggested reading: World Wealth Report

This annual report examines the behavior of high net worth individuals (HNWIs) – those with over $1 million in investable assets. I believe this report is skewed a bit because it is based on survey data of Merrill Lynch clients around the world. Even so, it offers interesting information.

Among the most substantial findings is that business ownership is estimated to be the leading source of wealth among HNWIs globally. This is contained in the 2006 WWR.

Click here to view WWR archives.

This is quite a simple concept so this post will be very brief.

• Our weak economy has brought very high inflation: as high as 13% over the past year.
• Future dollars are worth much less than dollars today.
• With a Solo 401k you can make tax-deductible contributions to your retirement plan in today’s dollars and pay taxes later in less valuable dollars.
• Successful entrepreneurs and self employed individuals can contribute $49,000 per year or more to their Solo 401k in 2009.

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While there are many people finding themselves more fearful than ever, there are others who are more excited than ever. Here’s why…

1. The rules of safety and courage have changed. Since the industrial revolution, employee-ism has surged. During this time, getting a job to work for somebody else was the safe thing to do. On the other side of the coin the risky, courageous act of working for oneself is what brings riches. As a result, each person has been faced with a choice to pursue either safety or riches. Part of what made employee-ism the safe bet for an individual is the stability of companies as well as what has become the largest store of non-real estate wealth in our country: holdings in the stock market. This year we have seen the rules of the game permanently changed. Our financial system is crashing, and trustworthiness has evaporated from corporate America and the financial services industry. Now working for yourself is no longer the courageous thing to do; it’s the safe thing to do.
2. Technology has brought immense power to everybody. Personal computers and the internet are now available to just about everyone. This has made some very expensive things become cheap or free. This has made it possible to do things that were previously impossible. There is no longer a need for every transaction to take place in a physical location. Needs and desires are able to be fulfilled online. In many circumstances, the large corporation cannot compete with the one-man shop. Today a person can start and run several businesses for little or no money. Taking something and creating or increasing its value has never been more accessible.
3. Arbitrage has never been easier to find and profit from. Arbitrage is the process of equalizing values. When two similar or identical assets can be bought at different prices in different markets, arbitrageurs show up to buy the assets in the lower priced market and sell them in the higher priced market. This act itself will usually bring the prices together in both markets. People have been “arbing” since the beginning of time. A farmer grows corn, and there is a town close by where he sells his corn. He discovers that in an other town further down the road, his corn will sell for more. He takes it there and enjoys increased profits for a period of time. In the book The 4 Hour Work Week, Tim Ferriss discusses geo-arbitrage. He describes this as the act of spending time in foreign locations that have a lower cost of living without reducing your standard of living – in fact he offers case studies in which people have largely upgraded their standard of living while maintaining or lowering their expenses. Anyone who can run their business over the internet will have the opportunity to enjoy geo-arbitrage. More change brings more arbitrage. We find ourselves in a time when change has never been more rapid or significant. Arbitrage has also never been more abundant.

I believe we’re moving into a time when self employment will replace much of the employee-ism of our recent history. Self employment today is quite different than just working a job for your own company. Owning a business in our rapidly changing, technology-armed environment allows you to disconnect your compensation from your time. Once your business can function independent of your personal time, you can develop additional streams of income and find ways to improve your businesses.

Every person, every government, and every company in the world is feeling the pressing of tremendous forces. Some of them include rising gas prices, rising food prices, rising real estate prices, falling real estate prices, unemployment, competition, etc. All of these problems create a demand for solutions. In some scenarios, large businesses with thousands of employees are too cumbersome to make changes as effectively as small businesses. As long as we continue to see change, there will be growing opportunity for small businesses to make the world a better place and profit in the course of doing so.

I believe self employment, responsibility, and self directed wealth management will become more common than the unnatural dependence of our recent years. There will be little opportunity for fraud and corruption once we have moved our wealth and power into our own hands.

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…our current circumstances. Rather than ignore the current economic problems, I choose to acknowledge this elephant in the living room during our Thanksgiving holiday.

We are bombarded with headlines like “What will fix our economic problems?” It is absolutely silly. The recession is the solution to the problem of the asinine acts of American government, corporations, and consumers. There is no galactic lottery that our country can win. We have to play by the rules of the game that we started. No person or government can perpetually spend more money than they earn. Such behavior can only be temporary and always leads to self inflicted unpleasantness.

I truly am thankful for our recession because it should help cleanse our government and society of self destructive behavior. We are now forced to return to thinking and doing things in the way that made the United States a prosperous country in the first place.

While the entertainment industry uses industrial psychology to lull us into vegging out at the cost of paying attention to advertisements all day long, it is a blessing for this economic crisis to wake us up and beckon us back to reality. We have become a nation of the most dependent people on earth. Dependent on:

• employment
• inefficient transportation
• inefficient sources of energy
• new clothes to make us look good
• new gadgets to make us feel good
• excessive amounts of food to comfort us
• the government to regulate everything we do

I see this economic crisis as a silent, involuntary re-declaration of independence. The illusion of safety and security being provided by employment is torn apart. People will learn how to create and sell valuable products and services to enrich themselves rather than an employer. As money is tight, sources of efficient energy and transportation will be embraced. Many of these sources have been there all along, but it sometimes takes household budgetary fear to try new things.

Many people will be forced to disrupt their pattern of indulging in food, gadgets, and clothes as means to find happiness… only to discover these indulgences are sometimes a source of unhappiness.

While we may let the government attempt to solve our problems in the short run, that is a path that eventually leads to the same undeniable fact that was the driving force behind the founding of our country: Wealth, safety, and freedom cannot be provided by any government… it can only be provided by the people themselves.

So become independent. Let’s turn this whole thing around. Over the past 30 years our population has consumed the natural and economic resources of the world. We’ve destroyed much of the wealth, prosperity, and resources of our existence… now let’s become a population that creates wealth and prosperity. The prosperity we desire can’t be won or handed to us – it must be created. Be thankful for the opportunity to be a part of what will go down in history as one of the most magnificent periods of mankind.

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The stock market implosion of 2008 has millions of Americans feeling financially helpless.  Yet individuals who are investing their 401k & IRA money in ventures outside the stock market are singing a different tune. Janice and Jack Stoddard, real estate professionals in Arkansas, heard about self directed investing from a seminar that taught how to invest IRA money into real estate.

Energized by the idea, the Stoddards established two IRAs, rolling over money from their traditional IRAs to fund them.  They used the IRAs to make small real estate transactions, purchasing and reselling property at a profit with all proceeds staying in the IRA.

In 2006, an opportunity to buy and then immediately re-sell 60 acres of undeveloped land at a profit came up.  Concerns over structuring the deal and keeping everything above board led the Stoddards to consult with us at Nabers Group.

“Jeff helped us establish a Solo 401k that could be used to handle the 60 acre transaction. The Solo 401k was a key component to our funding because we were able to contribute 10 times more to it than we could to an IRA.  Meanwhile, our son, who works in oil and gas, alerted us to keeping our eyes open for property with mineral rights for future transactions,” Janice says.

With the proceeds from the 60 acre sale, the Stoddards began looking for their next investment.  They found a 57 acre property with 54 acres of undeveloped land and a house that was sitting on three acres.  The property, valued at $435,000, was more than the couple had in cash in their Solo 401k, so they began looking at options. They contacted friends in Dallas and asked if they’d be interested in joining them in the investment. Their goal was to buy it and sub-divide it for resale in five and ten acre parcels.  Their friends, both physicians, agreed. We helped the couples form a Limited Liability Company for purposes of purchasing the land.  The LLC is owned jointly by the Stoddard’s Solo 401k and their friend’s IRA.

The owner had originally listed the property for $5,250 an acre with only 50% of the mineral rights.  At the time no drilling was taking place on the property and no natural gas had been pulled from the ground.  The Stoddards negotiated for full mineral rights and bought them with the property for $5,875 per acre. Over the next few months, natural gas producer Chesapeake Energy put a well on the property, and soon the LLC was receiving large monthly royalty checks for the natural gas on the property.  Over 18 months, those checks totaled more than $100,000.  When the Stoddards were approached by a buyer who wanted to purchase the mineral rights and not the land for $8700 an acre, they sold the rights, netting another $465,000 while retaining the land, now valued at an estimated $435,000.

A key to their success is that Janice knows real estate and knew how to identify an under-valued property that was a good investment.  With her son’s knowledge of oil and gas, her strategy became as much about the mineral rights as the real estate.  Mineral rights prices had been skyrocketing, lease values had been increasing in her area, and Janice knew she could resell the land and improvements alone and at least break even while keeping what she was really after – the mineral rights.

Within six real estate transactions, the LLC’s asset value had gone from $350,000 to more than $950,000 in under two years. The Stoddards have more than quadrupled their initial investment, and they aren’t stopping there.  Other property and mineral rights deals are already on the table for purchase with their Solo 401k funds. Our firm regularly structures Self Directed IRA & Solo 401k investment plans, and although the growth in the Stoddards’ investments is exceptional, it is not unique for someone who is as diligent in their investing as they are.

“I will admit to being a researcher,” Janice Stoddard says.  “When I found out that as a self-employed individual I could set up a retirement plan that would allow me to invest in real estate, which is something I know very well, I was excited about that.  The hard part was finding a financial expert who would embrace the concept of self directed investing.  Everyone I talked to told me I should buy stocks instead.  The Nabers Group has a wealth of experience in this area and Jeff has been very instrumental in giving us a thorough understanding of our options and the opportunities,” she says.

Today Stoddard advises other real estate professionals to do the same thing, and she’s joined the IRA Association of America to ensure that she is aware of regulations and new opportunities available to individual investors. “I talk to my friends, and they are absolutely despondent over what is happening to money they thought they had for retirement or college.  A lot of people have lost a lot of money in recent months.  When I tell them I didn’t lose a dime and that I’ve quadrupled the value of my Solo 401k over the last eighteen months, they want to know how,” Stoddard says.

Here at Nabers Group we are seeing our business grow because there are plenty of people who are not willing to ‘wait and see what happens’ with the stock market.  They want control over their finances, and they want to replace their restrictive IRA or 401k with one that offers unlimited possibilities.

Stoddard says she never hesitates to tell people to take charge of their own retirement money. “If we had not established our self directed investment accounts we would not have the cash available for investing that we now have. That’s what allows us the ability to act fast with real estate and mineral rights opportunities.   It’s a lot different than helplessly watching the market, and it has absolutely changed our future,” she says.

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We’ve just relaunched solo401k.com on this blogging platform to allow for regular information updates and easy navigation.  Use the categories at the bottom of the page to learn more about the world’s most powerful investment vehicle – the Solo 401k!

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