With more than $3.6 trillion in assets, individual retirement accounts (IRAs) comprise the fastest growing segment of the retirement plan market and are expected to continue to grow. The number and growth of these plans signifies an enormous investment opportunity for consumers. Many investors are looking not only to traditional options, such as stocks and bonds, but also to self-directed retirement accounts that enable them to invest in alternative assets which offer greater diversification and control over their retirement nest eggs.
In addition to investing in assets such as real estate, tax liens and hedge funds with a self-directed IRA, consumers are also able to invest in private stock, such as a newly-formed community bank. These newly-formed banks are often referred to as de novo banks. IRAs and most qualified business plans can invest in de novo bank stock. Golden Valley Bank, Patriot Federal Bank, Gold Coast Bank, Pacific Coast National Bank, Security Business Bank of San Diego, California Community Bank, Partners Bank, MetroPacific Bank, Saigon National Bank and People First Bank are just a few that have benefited from investments in their communities through retirement accounts, assisting the capital raising effort by attracting local money first.
Though investors looking for liquidity probably should not invest more than 10 to 20 percent of their IRA in de novo banks, those who are willing to hold the stock for the long-term may benefit nicely. History has shown that over a 10 to 15 year period, most banks experience gains that can be substantial, especially if the bank is acquired.
Many investors also like the following about investing in de novo banks with retirement funds:
- Returns on private bank stock can average 15 percent or more.
- The ability to invest in local communities and organizations dedicated to providing personalized service.
- Gains on the investment are sheltered in a tax-deferred environment. Even better, investors using Roth IRAs can have gains accumulate in their accounts tax-free.
- The ability to distance portfolios from the day-to-day volatility of the stock markets.
- The ability to diversify assets for risk mitigation.
Community banks must have the following key components in place before obtaining approval to raise money:
- Location feasibility studies.
- Proposed policies and procedures.
- Pro forma financial statements.
- Detailed business plan.
- Experienced management team.
The de novo community bank has long been an integral piece of the American financial system. These smaller banks often are acquired by larger banking institutions, providing them with the growth and customer base for which they are looking. De novo bank stock owners, as the early investors, frequently benefit financially from the acquisition process. With the historical performance of start-up bank stock and a fairly rigorous pre-opening approval process, de novo bank stock is gaining traction as a solid investment option for the self-directed IRA. Consequently, individuals who invest in the de novo bank sector often continue to do so because of the solid fundamentals.
TommyJoe A. Valenzuela ("TJ") is VP of sales and marketing for Trust Administration Services, a division of First Regional Bank. He has over fifteen years experience in the financial services industry, implementing marketing strategies that educate and benefit real estate professionals, attorneys and other esteemed advisors and is a guest speaker at industry conferences, addressing topics, such as taxable investment strategies and retirement plan investing. His firm administers more than $1.3 billion in assets, including those invested in real estate, tax liens and private equities. Trust has assisted over 125 banks in their money raising efforts.