Self-directed investing empowers individuals to take control of their financial future by making their own investment decisions. At the end of this article I will provide my step-by-step guide to help you get started on your alternative investment journey.
Traditional IRAs, offered by many financial institutions, typically limit investments to stocks, bonds, and mutual funds. Self-directed IRAs allow for a much broader range of investment choices. With a self-directed IRA, investors can invest in alternative assets such as real estate, private equity, precious metals, cryptocurrencies, and more.
Let’s consider some reasons why a self-directed IRA is considered a powerful tool.
#1 Choice
With self-directed investing, individuals have the freedom to choose where to allocate their funds creating greater control over their investment savings and investment decisions. They can choose which specific assets to invest in and when to buy, sell, or hold those assets. This level of control can appeal to individuals who want a hands-on approach to managing their retirement funds.
Contrastingly, when you work with a financial advisor or utilize a platform to select specific stocks, bonds, or mutual funds, you are limited to their choices, potentially missing out on other lucrative opportunities.
#2 Control
While self-directed investment in an IRA does put one in control, it comes with a greater degree of personal responsibility that requires diligence and research.
Engaging in self-directed investing can be a valuable learning experience. Investors have the opportunity to research and analyze investment opportunities, deepen their understanding of financial markets, and develop important skills for managing their finances. It also offers the potential for higher returns compared to more passive approaches. By identifying undervalued assets or taking advantage of market opportunities, investors can strive to outperform broader market indices.
However, it is important to note that self-directed investing also comes with risks, including the potential for losses and the need for ongoing monitoring and management of investments. Investors should carefully consider their financial situation, risk tolerance, and investment objective before engaging in self-directed investing.
#3 Diversification
Investors can reduce this risk by diversifying their portfolios across different asset classes, industries, and geographical regions. They’re not limited to the offerings of a single investment fund or advisor. This diversification can help mitigate the impact of market fluctuations and economic downturns on their retirement savings.
Self-directed investors can tailor their investment strategies to their individual preferences and goals. Whether they’re focused on income generation, capital appreciation, or a combination of both, they have the flexibility to build a portfolio that suits their needs. In part 2 of this article I will provide my step-by-step guide to help you get started on your alternative investment journey.