During last week’s state of the union address, President Obama unveiled a new affordable retirement account, ‘MyRA’ aimed at helping more Americans build a nest egg. The President’s 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.
Unbeknownst to the administration, a retirement vehicle with the very same name has been in the marketplace for the past five years, helping thousands of Americans, in all 50 states, grow their retirement savings. In order to differentiate the two products, I sat down to interview Doug Lawson, CEO of Kingdom Trust and provider of the Kingdom MyRA self-directed IRA.
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, while government-backed, 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 consistently 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 especially excited about our newest product, the KingdomCrowdIRA, a low-cost point of entry retirement vehicle. The KingdomCrowdIRA levels the investing playing field by affording the 99% the very same opportunities 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.