Many of us tend to think about our “big picture” financial issues relatively infrequently. A once a year review is often all the time we’re able or willing to spend, so it’s important to get the most out of our planning. Here are some tips for helping you formulate your investing plan with your self-directed IRA next year.
1. What Has Changed Since Last Year?
The best starting point is probably to evaluate what has changed since last year, or the last time you updated your self-directed IRA investing plan. Consider personal circumstances such as a marriage or divorce, the birth of a new child, or a child going off to college. Also consider any professional changes, such as moving to a new job, a promotion, or going back to school in order to switch careers. All of these factors can have direct impacts on your investing plan.
2. Do Your Investing Assumptions Still Hold True?
Also go back and review the reasons and assumptions you had when you first meet each portfolio investing in your self-directed IRA. Do those same reasons still hold true? In many cases, determining whether or not to hold on to your existing investments can be as simple as simply asking yourself the question “would I choose to buy this asset today at this price?”
3. Consider Transaction Costs.
Of course, deciding that you don’t want to hold a particular investment anymore doesn’t mean that you have to sell it right now, regardless of cost. It’s generally a good idea not to churn through your portfolio and trade in and out of investments too quickly (very few individuals are actually doing this successfully on a long-term basis). But you should not ignore any additional costs that you may incur, or market fluctuations that you have to bear, trying to dispose of a portfolio asset right now. For example, you might hold a single family home as an investment property, and determined that the market for sales in your area is generally much better in April or May that it is in December or January.
4. Know Yourself.
Finally, it’s important that you know yourself, in the sense that you understand your own personal investing philosophy. Individuals who choose investments that are outside of their comfort zone can often make bad decisions when they come face-to-face with significant market volatility or other macro level events. By taking a look at your past investing behaviors – most notably whether you are prone to selling market lows or buying at market highs – you can match directed IRA investments to your own investing sensibilities.
If possible, don’t make the mistake of only thinking about your portfolio on a yearly basis. The new year is a great time to take a look at things, but you probably want to consider doing that again before the next new year rolls around.