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!