One Self-Directed IRA & 40 Head Of Cattle

40 Head Of Cattle

As many of you know I am a fan of managing your own retirement through the use of a Self-Directed IRA.  I am still considering investing in tax liens although I have just discovered that if I do, I would have to tie up my capital for at least 3 years.  I am not sure I want to do that.  So, while I decide if a three-year commitment to investing in tax liens is a good option, I have decided to diversify by investing in the cattle business.  No, I know very little about cattle investing, except for the fact that I like t-bone steaks!

In all seriousness though, I have a friend Jason, who is a cattle broker.  He, is also a cattle investor who has hundreds of acres in which to raise them in the proper environment.  He has so many contacts in the industry, and because of that, he can buy from the best ranchers at ideal prices and sell to the feed lots who will pay the highest price.  He has also bought some cattle for himself, which was one of the main reasons I was confortable with it.  I was always told that if you plan on investing with someone make sure they too, have some skin in the game.  He passed that test!

What is the objective with cattle investing.

Did you know you could use your IRA to invest in nearly anything?  Who would have ever thought you could buy cattle with IRA funds?  Six months ago, I didn’t even know that was legal, much less available to someone who knew little to nothing about cattle investing.  So, I decided to jump right in, and had my friend Jason buy 40 heifers, which are female cattle for all you city slickers.  I wasn’t aware of the terminology either, so forgive me if I’m being a bit remedial.  Our intentions are to impregnate the 40 heifers using artificial insemination, or AI, as in known in the industry.  This AI will take place in the next couple of weeks and the gestational period is about 8 1/2 to 9 months.  Jason assumes all heifers will be pregnant by early August, which will double the amount of cattle by next April.  My initial investment was $32,800 which was $800 for each head of cattle.  I will have costs of medication, AI, feed, and boarding which according to our contract will not exceed $18,500.  So my total investment will be in the neighborhood of $50,000.  If all goes well I will have 80 head of cattle available for sale next April at anywhere between $800-$1000 each.  I will then have to pay Jason a fee depending on the amount of profit I make, which gives him the incentive to get the best price.

Where the capital came from

I have to admit that, although I am a huge fan of Self-directed IRA’s, I have to give Cred to the 401k plan which has enabled me save the capital.  I worked for an insurance company for 8 years and was diligent about maxing out my 401k during that time.  It was during the good times of the stock market, between the years of 2000 and 2008.  In fact, I rolled it over in 2008 to a Traditional IRA with Raymond James Financial right before the market crashed in October of 2008, I was lucky!  So, even though I have a bit of capital, I still can’t take anything out for another 17 1/2 years, without facing a tax implication.  So I need to do some gazelle saving (as Dave Ramsey calls it) over the next two decades.

Why I am nervous to be invested in the stock market

My discomfort with the stock market is what truly led me to the Self-Directed IRA route.  I wanted to invest in things that weren’t connected to Wall Street.  I wanted to be at arms length with my investments.  I want to be an active participant.  Financial Samurai, says invest in something tangible, I agree, I think cattle is a good example of a tangible investment.   Call me a control freak, but if I am not in control of my investments then who is.  My Broker?  No.  The financial institution?  No.  They both have their best interest at heart, I am the only one with my best interest at heart, so I want to make the choices.

For more on this read about how I made $65,000 from selling the cattle from this deal.

How has your IRA experience been?

Photo credit: Leszek Leszczynski