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Happy Friday! It’s been a whirlwind week for me as Kung Fu Guy was in Israel all week and Kung Fu Grandma left on Monday, leaving me as a single-parent all week—I do not know how full-time single parents do it! But all is back-to-normal now thankfully and I am looking forward to a three-day weekend!

Speaking of which, I will most probably take Monday off as Kung Fu Guy has it off and hopefully you do, too! But I will see you on Tuesday, and I have an action-packed week planned for you next week! Let’s get right to your questions…

First, Dave asks,

Hi Susan, I love your emails and web site. I filled out the survey the other week. I have a question – we just rolled over my wife’s 401K into a self-directed IRA. When we got the distribution it only comes out as cash (US Dollars). Now we’ve got a ton of cash. Any suggestions – this is a bit overwhelming. Best regards, Dave

Hi Dave, sure, send all your cash to me!  🙂  (Kidding…)  Seriously, congratulations on making the move to a self-directed IRA (good for you!) and make sure to fill out the appropriate forms for the good ol’ IRS so that it is not considered a “distribution” but a proper rollover as you definitely don’t want to pay all those taxes and a 10% penalty right now!

That would be a horrible rain on your parade, so definitely make sure you get that done! I am not a tax advisor but I know you have a certain number of days (I believe it’s 60, but definitely check with a qualified tax advisor) from when you receive your cash distribution to get it over to your new provider and file all of the proper forms with the IRS…good luck!

As for suggestions, although I am not licensed to give personal financial advice (please insert all kinds of disclaimers here…) I actually do have one suggestion for you — do nothing. Honestly! I am not trying to be funny…if you are feeling overwhelmed (and it is overwhelming to suddenly have CHOICES again in your life as you do with a self-directed IRA—wonderful, but overwhelming) I would just do nothing for a bit.

In fact, that is an absolutely sane and wonderful strategy given the current economic environment—you are in an enviable position having so much cash! Contrary to what Wall Street would have you believe (which is “hurry up and get all of that money invested in the stock market, pronto!”), sitting on a lot of cash is not necessarily a bad idea!

You now have the time to step back, look at your entire financial “life” from a big picture perspective, create your vision, goals, and war plan for your future, and then decide what makes the most sense for you. You can use a disciplined strategy, like buying in “tranches” and averaging in to any positions you do decide to take on, and most importantly you can take your time and do what’s right for you.

If you don’t own any precious metals, you can determine if you’d like to add some to your portfolio (and because it’s a self-directed IRA, you can actually add physical bullion, which is terrific), how much makes sense for you, etc., and you don’t need to “go all in” at once. You have the luxury of time and cash…the two most precious commodities in the universe!

Even if you do nothing for the entire year, what will you really lose in the worst-case scenario? If you had just been in cash last year you would have done better than many super hedge fund investors who lost 40% and more, and even the S&P 500 index fund only returned .07% (yes, that’s less than 1/10th of 1%!).

Now of course I’m sure you want to do better than that, and probably also start investing in many of the interesting things that you can within a self-directed IRA, but there is absolutely no rush. Take the time to build your war plan, decide on what you want to do and how much you want to allocate to which assets, how much you want to “speculate” with versus how much you want to keep “slow and steady”, etc. And enjoy sleeping well at night…the S&P 500 ended up a teensy-tiny bit higher, true, but there were also times last year when it was down 17%+ (from its April high to its August low).

Enjoy your newfound freedom and cash, and to your P.S., yes of course I’d be happy to meet you in person in May! Just give me a shout when it gets closer. Thanks for your great question!

Next, Jeff, Steve, George, and many, many others said they would love to participate in a Kung Fu Finance “Wall Street Survivor” paper trade game,

So I will set that up in the next few weeks…. Just remember the famous adage about having eggs and bacon for breakfast—the chicken is “involved” but the pig is “committed”! We will be “chickens” in our paper trading game so just keep that in mind when you enter the “real” world with your real hard-earned cash.

Next, Tutu from Hawaii asks, 

Most of the recommended venues are foreign powers and not necessarily allies that may not always be in accord with our U.S. policies politically and otherwise, so this would be my biggest apprehension in considering Chinese, Australian, Argentinian, or Mongolian investments. What assurance do we have that these companies and countries would insure fair play on the economic market? This may be a very simplistic neophyte’s question, but this is where I am, completely economics-deprived, having forgotten everything in Econ. 101 eons ago. Mahalo for awakening the seniors’ consciousness to money matters. It’s never beyond or above us. — Tutu

Hi Tutu, and thank you for your question! It is absolutely not a “simplistic neophyte” question, and in fact, you are bringing up one of the most important things to consider when investing: RISK.

There are all different types of risks to consider when investing, and even cold, hard U.S. cash has risk: there is inflation and interest rate risk (the risk that your savings won’t keep up with the rate of inflation), currency risk (as the value of the US dollar fluctuates against other world currencies), and more…

There is always risk inherent whenever you are investing which is why it is so important to do your research before purchasing any investment!

So the short answer to your question is that there are no guarantees.

But that is true no matter what you are investing in or where you are investing, and holds true for the U.S. as well… Just look what happened to Enron, WorldCom, Tyco, US Airways, Delta, Pacific Gas & Electric here in California where I live, General Motors, Chrysler, Lehman Brothers, and many more (all of the above filed for Chapter 11 bankruptcy at least once, and some more than once in the past ten years; shareholders lost billions!).

And in addition to company risk, there is always political risk to consider, whether the company is US-based or International—we have little control over decisions that foreign countries will make on their economic policies, true, but unfortunately that holds true here in the U.S. as well…we may live in a “democracy” but our government doesn’t “play fair” as you say in the economic market, either. In fact, within the recent past our government has confiscated its citizens’ gold, forcibly removed good, law-abiding people from their homes (e.g. Pearl Harbor / Water Town in Hawaii), imposed rationing and price controls on its people, and more.

Risk is such an important subject when investing that it’s worthy of its own post (or several)!

One last thing…you say “most of the recommended venues…” and I want to clarify that I am not necessarily “recommending” anything I write about—one of the core tenets of my philosophy is “think for yourself, Grasshopper” because there is absolutely no “one size fits all” in investing, and everyone’s personal circumstances are different. (I just want to clear that up because if you are assuming I am recommending things that I write about, others may be, too!)

Different investments are “appropriate” for different people with different personal circumstances and risk tolerances—I’m certainly not advocating that “everyone” should consider investing in Mongolia (Or Argentina, or in bonds, or resource stocks, or use options, or precious metals, or anything…)

These are all different investment vehicles with different risks, uses, and rewards, and you absolutely must think for yourself and choose the investments that are most appropriate for *you* and your personal situation.

And please remember, I am not a licensed investment advisor and therefore cannot give personal financial advice, but I do believe as you say above that investing is not “above or beyond” anyone and you definitely can make great choices that work well for you and your personal situation!

That’s it for today… thank you for your great questions and have a fantastic weekend!

To your financial success,

— Kung Fu Girl