My wife and I have been trying to decide if we should open Roth IRAs this year. The benefit of a “Roth” is that earnings grow tax free. It is a strong incentive, but I’ll explain why we decided against it for now.
Worldwide, governments are sitting on massive debts and grappling for ever-increasing market oversight, and people are starting to reach the limits of how much they are willing to be lied to, stolen from, and beaten down. All the while, we are in the midst of the greatest technological revolution since the printing press set off the Renaissance.
Thanks to ingenuity, things will get much better, but only after a much overdue correction that shifts resources into competent hands and power to the individual (meaning governments are whittled down to as small as possible).
So what does this have to do with a Roth IRA?
Political uncertainty today presents a sizable obstacle to planning for the future. The potential benefit of tax free earnings for the next 30 years is enticing, but there is a risk of governments stealing accounts like they’ve done with pensions in Poland, Bulgaria, Hungary, Ireland, France (see here) and, most recently, private accounts in Cyprus.
The short answer is that we don’t know the future, so we will diversify:
- Under the mattress. You can laugh, but I don’t want to be stuck cursing the ATM like the Cypriots during their four-day bank holiday.
- Precious metals. Physical gold and silver are essential to diversification as long as central banks around the world are debasing currencies.
- Savings. The US dollar will eventually go the way of all paper currencies (which is to being worthless), but for now its necessary for daily living. We keep only enough to feel secure and save for planned purchases (like vacations), the rest we invest.
- Employer-sponsored 401(k). Our employers give us money in the way of matching our contributions, so we’re happy to take it. (I wrote a blog on protecting your 401(k) here). We only contribute to enough to max out the match.
- Personal investment accounts. If we trusted our government we would probably max out the Roth first, but we don’t. We have two separate private investment accounts. As our wealth grows, we will also fund international accounts for political diversification.
- Roth IRA. If we didn’t have employer-sponsored 401(k)s, we would probably open Roths and fund them alongside our personal accounts. Our 401(k)s currently make up about half of our investment portfolio and that is more political risk than I’m comfortable with, so for now we’re working on building up our personal investment accounts and leaving the Roth for another day.