Analysis Conducting Your Self-Directed IRA.

Estimated reading time: 3 minutes(Last Updated On: April 12, 2021)

The most important principle of managing your retirement future is to save and contribute the maximum amount each year to the tax advantaged retirement accounts you have. But one important aspect of retirement savings that’s occasionally overlooked is how you actually invest those retirement funds. Similarly, an investment decision isn’t an isolated or one-time process. You should periodically review your current investments to make sure that the reasons you have for investing haven’t changed, and that the assumptions you made about the investment are still true. The process of looking at your current investments with a critical eye is known as a portfolio analysis.

Before deciding how to conduct your portfolio analysis, you need to identify where you are on the retirement spectrum. A 20-year-old and a 60-year-old are not going to approach a portfolio analysis in quite the same way.

Let’s say you’re close to the date of your planned retirement, or that you’ve already begun retirement. At this stage, you’re going to need to balance two very important factors: your ability to fund your current retirement expenses now, and your ability to continue doing so for the rest of your life. This might sound obvious, but the upshot is that your focus is likely to be more on stable investments that put your investment capital at less risk, while your portfolio should have less of a focus on capital growth.

Look at how your investments have performed over the past one, three and five year periods. During a portfolio analysis, take into account any income those investments may have generated, as well as the underlying change in asset value. Compare these numbers against reasonable benchmarks in order to determine whether your investments have outperformed, underperformed or are on par with similar investments

This isn’t to say that you need to invest all the funds in your self-directed IRA in the safest possible investments. Since those investments often provide the lowest levels of current income, at some point during retirement you run the risk of having to liquidate some of your underlying investments just to pay your monthly expenses.

Note that if your self-directed IRA is set up as a traditional IRA, then you become subject to the rules on required minimum distributions once you reach age 72. As you analyze your self-directed IRA, make sure that your assets are such that you will be able to make the required withdrawals each and every year without having to liquidate a particular asset under less than ideal circumstances. For example, if you own an apartment building or other multi-family residential real estate in a traditional self-directed IRA, you want to avoid a situation where you must sell the underlying property simply to meet your required minimum distribution obligations.

Contact Quest Trust Company for additional information on how the flexibility of a self-directed IRA can help you choose the best possible investments for your desired portfolio composition.

Quest Trust Company helps change people’s lives and financial future through self-directed IRA investment education. Quest Trust Company helps people invest in what they know best and build their financial future on their own terms.