At Equity Trust Company, complaints about conventional retirement
investments are fairly common. It is precisely because of the limitations of
traditional IRA and 401(k) models that many investors turn to Equity Trust,
seeking greater financial freedom in the form of self-directed IRAs. And true
enough: A self-directed retirement account can often prove advantageous,
especially for those who know something about investing in alternatives.
With that said, there are certain challenges involved with
self-directed IRAs. As the investor, you are required to make prudent
investment decisions, and your ability to do so ultimately determines how
successful your investments really are. Additionally, the self-directed model
is sufficiently different from conventional retirement accounts and, for some
beginners, it can all seem overwhelming.
That is why it is important to receive an education before
signing up for a self-directed IRA. In particular, it is important to identify
some common self-directed IRA blunders, and to protect against making these
common mistakes. Three prevalent self-directed IRA errors are listed here;
avoid them, and investment success could be yours!
Error #1: Losing track of prohibited investments.
One of the real benefits of the self-directed IRA is that
you can invest in a number of different fields; instead of relying on stocks
and bonds, for instance, you can put your money into real estate, foreign
currencies, and even certain commodities. With that said, you cannot do just anything with your IRA; certain
transactions are prohibited by the IRA.
This is a fairly brief list, and learning it is not hard.
However, the list of prohibited transactions can change from time to time. It
is important to periodically review these IRS regulations.
Error #2: Making rash or hasty investments.
When you have a self-directed IRA, the temptation to jump
onto whatever is currently hot or trendy can be overwhelming. It is prudent to resist this temptation. Actually, making an investment in a
self-directed IRA is simple. Always do
your research before making an investment, and look for indications that a
particular investment will do well over time – no just in the short term!
Error #3: Thinking your retirement investment can grow on its own.
For self-directed IRA investors, it is easy to think that
simply by making a prudent investment, you can watch your IRA grow and prosper.
As with any investment, though, you cannot take a hands-off approach. The only
way to grow your investment is to monitor it; to do maintenance where required;
and to make timely transactions, when appropriate. You have to guide your IRA
if you want it to work for you!
