Owning a self-directed IRA gives you a number of different freedoms over having your account with a traditional IRA custodian. For example, you can use a self-directed IRA to invest in all the different asset classes that are legally permissible, but which traditional IRA custodians won’t allow. These include real estate, precious metals, and various types of private equity and debt investments.
This means that you can use your self-directed IRA to execute upon your own personal investing philosophy and outlook with the widest possible range of investment choices. But to do this effectively, of course, you will need to understand just what your investing philosophy and outlook are.
What Kind of Investor Are You?
There are a number of resources online to help you determine your investing philosophy. You can take an online quiz, or go back and review some of your past investment activities. Do you enjoy the “rush” of high-risk / high-reward investing, even when some of your past investment choices haven’t worked out the way you wanted? Or have you deliberately tended to shy away from the riskier side of the investment spectrum in the past, being willing to give up some potential gains in order to be more comfortable that your underlying investment principle is safe?
What is Your Investment Outlook?
Next you should consider what your investment outlook is. This will include objective factors such as how many years you have until you reach your target retirement age, as well as more subjective factors such as the lifestyle that you plan to have during retirement.
This information can help you determine the type of performance goals you have for your website in the context of your individual situation. By asking yourself these questions you’ll have a solid basis for choosing your individual investments, because they’ll be supporting your particular needs, rather than just working towards an arbitrary retirement savings goal.
What Types of Investment Classes Fit Best?
Your next step is to identify the types of investment classes best suit your needs. Begin by framing this inquiry in terms of what your current income needs are (if any), as well as how much capital growth and appreciation you’re looking to target.
The traditional wisdom is that individuals who are closer to retirement age (or who perhaps have already entered retirement) will generally have a greater need for income producing investments, while individuals who have several decades before reaching retirement age will want to have a much higher percentage of their portfolios in growth-oriented investments. This may be true in the broadest of terms, but there is some disagreement on precisely what the optimal mix of income and growth should be for an investor of a particular age. So don’t follow any suggest invested mix unless you’re comfortable it’s a good fit for you.
By considering your unique financial situation and your investing personality, you’ll be in a great position to choose the most appropriate investments for your self-directed IRA.