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The Low-Zero Yield Play And The Self Directed IRA

The Fed has continued to promote and enforce a low interest rate environment for the past several years. The purpose of such a policy is to promote and incentivize consumers and small businesses to borrow. When these groups (2/3rds of the GDP) have cash, they spend or invest it in business expansion, homes, durable goods, equipment, etc.

The basic theory is fine, and seems logical, but the reality has been quite the opposite with very negative effects. First of all how many people or businesses do you know that have been able to get a loan recently? My guess is few to none. Secondly, when interest rates reach such a low level, how much incentive is there for people with cash to invest in government treasuries when the economy is in such dire straits? The answer is that people with idle capital (cash), look at projects, the project’s risk-reward ratio, and the the general state of the economy. The end result is that they see risk in the project and they see interest rates as non-existent, so they just sit on their cash waiting for the right opportunity.

Now let’s look at the person at, in or nearing retirement. As you approach and enter retirement you start looking for the safest, highest yielding investments. However, in today‘s low/no interest environment, these people cannot find adequate returns. So, they end up sitting on cash.

The net result of our current low-zero interest rate environment is that rather than motivate and drive increase investment and economic activity, it tends to have the opposite effect. When the Fed states for the fourth time that they are going hold down rates, that sends a clear message that even though we think the economy is getting better, its not really strong enough to make us feel good. The net result is apprehension and avoidance by the average business, consumer or investor, therefore, I’ll sit on my cash for now.

Ultimately the Fed will continue to print money and push it into the money supply to prevent deflation. This has a inflationary impact at some point.

So, how does this impact my self directed IRA?
At the end of day, the current low-zero interest rate environment will be inflationary. This will push up prices and loss of purchasing power. This is a perfect environment in which to hold precious metals and real estate in your self directed IRA.


The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.