Becoming More Active in Your Self-Directed IRA Investments

Estimated reading time: 2 minutes(Last Updated On: December 9, 2019)

Unfortunately, because the purpose of an IRA is to build a retirement nest egg that won’t be drawn down upon for many years, or even decades, some account holders mistakenly assume that means they need to hold their investments within the account for years or decades as well. The truth of the matter is that you should generally evaluate portfolio investments within a self-directed IRA with the same criteria that you use for any investments in a tax advantaged account.

While self-directed IRAs aren’t the ideal account type for rapid day trading activities, you still may be able to benefit from becoming more active in your investing process. The first step towards being more active is to arm yourself with knowledge.

Identifying New Investment Opportunities

In order to take a more active role in your retirement future is to identify all the new investment opportunities you’ll have available for your retirement nest egg when you have a self-directed IRA. Unlike the investment options you have with an IRA at a traditional custodian – mainly stocks, bonds and mutual funds – you will have significantly more options with a self-directed IRA.

Take the time to begin learning more about the opportunities available in investment real estate, private equity, private debt, and precious metals. Some of these asset classes may be ones that you have never had experience with before, so take the time to learn as much as you can about them before you begin investing.

Understand Your Investment Personality

Not every “good investment” is suitable for every individual. We each have our own investing personality, and it can vary significantly from individual to individual. Some people are simply not comfortable with high risk/high reward investments, while others may be unsatisfied with a “slow and steady” approach.

You can begin the process of identifying your investment personality by first considering some of the objective factors about your retirement planning, including how long you have to invest before you anticipate retiring, as well as other sources of retirement income you may have. Also consider your prior investing habits, your experience and knowledge of various types of investments.

Finally, you’ll need to evaluate your tolerance for risk

Don’t just consider this issue in a vacuum – attach some dollar figures to your thought process. Would you be able to tolerate a 10% drop in the value of your portfolio at any point over the next 10 years? What about a 20% decline at any point between now and your target retirement date? Are you truly comfortable accepting the possibility of investment losses if the trade-off is potentially higher gains?

Once you know more about the investment opportunities that are available, as well as your investing personality, you’ll be in a much stronger position to actively manage your account and to maximize your retirement nest egg.

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