During the state of the union address on Tuesday night, President Obama unveiled a new affordable retirement account, ‘MyRA’ aimed at helping more Americans build a nest egg. According to the President, MyRAs would “guarantee a decent return with no risk of losing what you put in”.
This noble initiative is in response to the widening wealth gap exacerbated in part by the colossal stock market returns of the past five years that have yet to flow to lower income workers.
“Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s,” Obama stated on Tuesday.
In order to fully understand the implications of the President’s new retirement savings vehicle, I sat down to interview retirement specialist, Doug Lawson, CEO of Kingdom Trust, a leading provider of custodial solutions that recently launched its own affordable retirement product, KingdomCrowdIRA. Coincidentally, Kingdom possesses another keynote product also called the MyRA. For the past five years, thousands of Americans, in all 50 states, have been benefiting from Kingdom’s MyRA.
Dara: Doug, what do you think about the President’s plan to bring an affordable retirement vehicle to the masses?
Doug: If executed correctly, this initiative could prove to be very promising for not only small investors, but for the economy at large, particularly as it helps propel America into a nation of savers again. I don’t think most people realize how difficult it is to get started saving for retirement. Many of today’s brokerage firms won’t even open accounts with less than $250K. An inexpensive, principal-guaranteed retirement account that allows people to invest in small increments would provide the ideal opportunity for America’s working class to learn the investment landscape and begin building wealth.
Dara: How does the Kingdom MyRA differ from the President’s?
Doug: Although both products emphasize long-term safety and portfolio growth, Kingdom’s MyRA is a self-directed IRA that provides investors with much more investment diversity and control – but no principal guarantee. The President’s proposed MyRA will feature just one investment option—a Treasury bond that will offer the same variable interest-rate return that federal employees get when they enroll in the Thrift Savings Plan Government Securities Investment Fund. On the other hand, Kingdom’s MyRA enables individuals to invest in a number of asset classes including highly sought after alternatives which are now believed to make up approximately 27% of institutional portfolios.
Dara: The Thrift Savings Plan (TSP) Government Securities Investment Fund earned 1.74% last year, and has produced an average annual return of 3.61% from 2003 through 2012. It would take an individual 10 years just to accumulate $15,000 by investing $100 per month at a 3.6% annual rate. My worry is that hard working Americans won’t be able to keep up with inflation let alone make dent in the wealth gap. What do you think?
Doug: I agree. But understand that the President’s MyRA is a good “starter product” that will get people comfortable with saving and investing. As people grow their nest egg, they will have an opportunity to upgrade to more flexible retirement vehicles such as the Kingdom MyRA self-directed IRA. The self-directed IRA is the greatest wealth tool ever created. Alternative asset investing in self-directed IRAs is how many one-percenters were able to amass incredible wealth.
Dara: Can you discuss some of the alternative investments people are making in Kingdom’s MyRA?
Doug: We see investments being made into a number of alternative assets including real estate, small businesses, private company stock and private funds. We’ve recently experienced a growing demand for crowdfinance asset classes, particularly p2p loans. Kingdom currently serves as the custodian for Prosper, the nation’s second largest p2p lending platform. As you are well aware, with interest rates at all time lows, investors are clamoring for yield. Many are finding yields in excess of 8% through platforms like Prosper, and are growing those returns tax-deferred in their Kingdom MyRA’s. At an 8% annual growth rate, one can expect her money to double every 9 years.
Dara: Aside from the obvious potential for greater returns, why are Kingdom MyRA investors attracted to alternatives?
Doug: Great question. I think it is the freedom for the account holder to invest in industries and businesses that he knows and understands. This is why we are really excited about our newest product, KingdomCrowdIRA. By creating a low-cost point of entry retirement vehicle, our objective is to level the investing playing field by giving the 99% the same opportunity, as the 1%, to invest in what they know.
Dara: Thanks so much, Doug. I really appreciate your time today, and am grateful for the contributions Kingdom is bringing to the crowdfinance industry.
Please make sure to view this short video describing the key differences between the President’s MyRA and Kingdom’s MyRA.