8 Important Questions to Ask Yourself Before Choosing Your Next IRA Investment

Estimated reading time: 5 minutesLast updated on: June 18, 2021

How many times have you heard the horror stories of someone jumping into something before doing the proper research or planning? Way too often this happens in the world of investing. The stock market will have a winning day, social media will buzz, and the next thing you know everyone wants to start investing with their IRA. So how do you know which investment is right for you? 

There are thousands of investment possibilities out there and each one has its own benefits to offer, but sometimes narrowing down which one is best for you can be confusing and overwhelming. Whether you’re just getting started or you’re a seasoned investor, the following remains true: no one wants to lose money because they jumped into a bad investment too quickly. Take the time to ask yourself this set of question to ensure you’re investing in the best possible assets for your goals.

  1. How much are you looking to diversify? First and foremost, decide how much you’re looking to diversify your portfolio. Most people think that diversification simply means spreading your funds across multiple different stocks, but it actually goes much further. There are certain investments that are public, meaning these are openly traded on the stock market, and there are also privately held assets which you can invest into using a Self-Directed IRA (SDIRA). Not only can diversifying your assets give you more security since your nest eggs aren’t all in just one basket, it can also give you the freedom to invest in assets you may not be able to at a more traditional custodian. 
  2. What investments interest you? –Think about what investments excite you and peak your interest. You don’t want to invest into something that you don’t necessarily like. Choosing an investment that interests you will give you more incentive and make you more excited to hold it. SDIRAs give investors options to invest into things that may interest a wider variety of things like real estate, oil and gas, or a vast multitude of private companies, which can be a great benefit. 
  3. What investments are you knowledgeable about? This one is important. Take a moment to think about investments that you know a lot about, or are interested in learning more about. Typically, these investments are going to be the ones that give you better returns. Wall Street investors make so much is because they know how the stock market works really well. Investing into the things you’re knowledgeable about will more likely than not give you better returns than if you were to invest into something you don’t understand.
  4. Can your IRA hold the type of investment you want? Not all IRAs are created equal! As mentioned above, there are certain custodians that hold public investments and others that hold private investments such as real estate. You’ll first want to determine which one is best for you. The good news is that the only thing that the IRS says that you cannot invest into are collectibles like art and life insurance contracts. That means there is an almost endless list of possibilities you CAN invest into with a Self-Directed IRA. It’s just important to understand the people you can and can’t do business with if you choose to hold a private investment in your SDIRA. 
  5. How much money do you have? Here is where we get technical. You have to ask yourself the obvious question: how much do you have to work with? It goes without saying that in order to invest you have to have money to invest with, but even if you’re just starting with a small amount of money, the investment possibilities are endless. There are even some strategies such as partnering that can help you grow your money now and for the future at the same time. Figure out how much money you can put towards an IRA each year, and you’ll quickly see how fast your account can grow when you put your money to work. 
  6. How much effort do you want to put into investing? Often times, people don’t understand how much time and effort can sometimes go into Self-Directed investing. Decide how much of yourself you are willing to give to your investments, and this will help you figure out which one might be a good fit for your lifestyle. There are those who want to dedicate a lot of their time to their SDIRA investments and others who don’t. Real estate has proven to be a great investment for people who can dedicate the needed time and effort that involves buying and selling properties. On the other hand, for those who may not have as much time to spend, a more passive approach like private loans or note investing can be a great option.
  7. What investments are you comfortable holding in your IRA? Understand that purchasing an investment isn’t the same as purchasing something from the store; you can’t just return it if you don’t like it. Before picking your investment, ask yourself if it’s something you’re comfortable holding. Does it sit right with you ethically? If something happened and you had to assume unplanned responsibility, would you feel okay with that? Don’t find yourself wishing you had thought about those things after it’s too late.  
  8. Do you know your timeline? This last one is something that often gets overlooked, but should be amongst everyone’s considerations. Determining how long you’re comfortable holding your investment can help shed light on which ones might be better suited for you and your IRA. Some long-term investments can lock your money in for a certain amount of time, which may not be the best option for you. This isn’t always necessarily a bad thing, especially if your goals are to create wealth for your future retirement. If you’re not looking to commit to something long-term, picking an investment that can produce a quicker return may be a better choice. 

Investing should always be a positive thing, which is why it’s important to think about your next investment before making your move. It’s always better to spend more time on the front end doing a little bit of preparation rather than wishing you had later down the road. If you ever have questions about a potential investment or want to open a SDIRA so you can do your first deal, give a Quest Trust Company Certified IRA Specialist a call at 855-FUN-IRAs (855-386-4727). To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

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