Tips to Start Self-Directed Investing
Saving for retirement is something that should be on everyone’s agenda. Developing an optimal investment strategy is important for success, but what if you didn’t have to rely on someone else to do the planning. If you want to lead the charge on your own retirement, then consider self-directed investing. With due diligence, the right research, and careful planning, you can direct your own investments and explore the alternative assets open to you. Keep in mind, with more freedom, there is more risk. If you are interested in self-directed investing, here are 10 simple things you need to know to get started.
1. Set Your Budget
Before you start investing, decide how much you must put toward your investments. By setting a budget, you can have a good idea of where you stand financially and what goals you want to achieve. A budget can help you decide what you can afford to invest in and what type of investment you can access. For example, a traditional IRA requires more upfront investment than a flexible Roth IRA. Additionally, if you plan to invest in something more costly, like real estate, you want to be sure you have the funds to do it.
2. Perform Your Due Diligence
Research is key to successful self-directed investing. This is where you learn the basics of trading, look at financial news, and really get to know what’s available to you. Keep in mind what investments you already know about and see what options are out there. What does it take to direct your own investments? This is also a good time to research the rules and regulations that come with the self-directed investment. Accumulated wealth will be worthless if you lose it all because of a bureaucratic mistake. Be cautious and perform your due diligence.
3. Make A Plan
After you’ve completed your research, it’s time to form a plan for your investments. Decide where you want to put your money. Put a number on it: how much do you want to accumulate before you retire? From there, choose the assets that will best suit your needs and will bring you the most income. Draw up a plan with realistic goals, good assets, and a timeline.
4. Research Your Assets
As you form your plan, start with what you know and where you want to put your money. With self-directed investing, you have more options than traditional stocks, bonds, and mutual funds. You can invest in so much more: real estate, precious metals, small business, hedge funds, cryptocurrency and more. You want to balance your investments and select the ones you can afford. If you have bigger plans, decide if you need to take out a loan and whether it would be worth it in the long run. It’s a good idea to stay within your means and change your plan as your fund grows. Watch the market, check the risk factors, and weigh the possibilities as you select your assets.
5. Form Your Portfolio
To capitalize on self-directed investment, you need to have a diverse portfolio. It’s never a good idea to dump your money into one asset, nor is it wise to spread your funds too thin over many. Select a well-balanced investment mix that will build out your portfolio. Your selection should include long-term and safe investments, paired with a few that have a higher risk. This diversity will protect your funds should an investment go wrong. Decide how much risk your willing to take and form your portfolio based on your research.
6. Select a Custodian
All self-directed investors are mandated by the IRS to have a certified IRA custodian oversee their account. The type of custodian you select should be determined by your assets, their knowledge, and how much you are willing to pay. You want someone who follows your vision, is up to par with their certifications and industry knowledge, and someone who won’t bleed you dry with fees.
7. Allocate Your Funds
While diversity is important for solid, long-term growth, so is where you put your money. Depending on the assets you select, you may need to monitor your funds and allocate them to the proper places. Real estate, for example, may cost more with upkeep, repairs, and other expenses. However, this asset may be the one pulling in all your money. Depending on where your growth is, you may want to arrange your funds in a way that will benefit your long-term growth.
8. Follow The Rules
With self-directed investing, there is a lot of freedom, but there is much more risk involved. It’s wise to research what you can and can’t do to avoid any pitfalls that may cost you your savings. For instance, there are certain assets you cannot invest in. Additionally, there are rules against self-dealing, individuals who can benefit from your property or “disqualified individuals,” and using personal funds on your IRA owned assets. A wrong step can lead to heavy penalties or even account deletion. Be sure to perform your due diligence to avoid these mistakes.
9. Monitor Your Assets
After you’ve made your investments, don’t just let them sit. Markets change and sometimes investments don’t grow as they should. Alternatively, you may have to shift your funds into an asset that is performing better than you hoped! Stay on top of your investments by cutting what isn’t working and moving your funds appropriately.
10. Stay Vigilant
To ultimately benefit from self-directed investing, you must stay vigilant. Be mindful of fees, costs, and asset upkeep. Watch your portfolio and make sure it’s growing. Finally, be certain that your account is in line with IRS standards. As the account owner, you oversee your investments. You are your greatest champion.
Self-directed investing can lead to a successful retirement fund if you perform your due diligence and be mindful of your assets. If you are unsure of which investments may be right for you, consult a trusted Horizon Trust financial advisor to help point you in the right direction. Take control and explore your investment options today.