Retirement Advantages of Self-Directed Investing
Saving for retirement is one of the most important steps you can take to secure your future. And, with the right investment strategy in place, you may even find that you can bid adieu to the daily grind before the traditional retirement age of 67. If retiring early is your goal, several factors will determine the best investment path for you, but one popular way is self-directed investing.
If you’re asking, “what is self-directed investing,” you’re not alone. Despite the fact that this investment option has been around since the early 1970s, they aren’t always well known. Many broker firms and banks guide customers towards more traditional investment opportunities.
However, traditional investment strategies, though still worthy of consideration, aren’t always the best vehicle to get you to that early retirement goal. If you’re in the process of considering your retirement account options, here are a few reasons you may want to consider self-directed investing.
1. You’re In Control
It’s your retirement, why should someone else take the wheel? It’s easy to follow into a default investment strategy — you choose an investment broker and they apply a one-size-fits-all approach to your retirement efforts. In some cases, that can work, but it can also stifle your earnings.
When you choose a self-directed investment strategy, you can build an investment portfolio that reflects your unique goals, whether that’s to increase your investment enough to have a modest retirement or to leave a legacy of wealth behind to your kin — or somewhere in between. Self-directed financing puts you back into the driving seat.
Quite simply, self-directed investment puts back in the driver’s seat.
2. Self-Directed Investing Provides Flexibility
When you invest in traditional IRAs or through an employee 401K, your choices are typically limited to common investment options — stocks, mutual funds, bonds, etc. If you choose a self-directed investment path, you unlock alternative investment strategies, the likes of which can make a significant difference in your long-term returns. For instance, with a self-directed IRA, you can choose to invest in real estate trusts, tax liens, precious metals, LLCs, and more.
The flexibility of self-directed investing is a benefit in and of itself, but it also allows you to leverage the power of diversity. If you’ve ever watched the stock market, you know that it can rise and fall within a day, and though that’s typically not problematic in the long-run, diversifying your investment portfolio can give you access to investment vehicles that are “stock market neutral.” That means you can leverage alternative investments, like real estate, to add some stability to your investment strategy while also taking advantage of traditional investments, like stocks, that are prone to more significant fluctuations.
4. Increased Growth Potential with Self-Directed Investing
Because self-directed investing allows for a diverse portfolio, you can choose the investment path that reflects your risk tolerance. It also means that you can choose an investment strategy that carries true potential for increased growth. As such, depending on the investment strategy employed, a self-directed investment portfolio can yield higher returns than those typically achieved through more traditional avenues.
5. Tax Benefits
One well-known tax advantage of self-directed IRAs or other qualified retirement plans is that the funds are tax-advantaged (tax-free, tax-deferred, and/or tax-deducted). And while that’s true for various types of investment options, because you can build a more diverse portfolio, you can leverage tax benefits on more than just stocks and mutual funds. Instead, those tax advantages can extend to the alternative investment avenues, like precious metals, LLCs, and real estate, allowing you to capitalize on the primary return and the tax benefits.
6. Multiple Investment Avenues
If you’re just beginning to research self-directed investing, then it’s likely you’ve come across several resources that specifically mention Traditional and Roth IRAs. And while those two investment accounts are certainly popular, they aren’t the only self-directed investing paths available to you.
You can choose to invest in a number of retirement accounts, including the following:
- Traditional IRA
- Roth IRA
- Simplified Employee Pension (SEP) IRA
- Savings Incentive Match Plan for Employees (SIMPLE) IRA
- Health Savings Account (HAS)
- Coverdell Education Savings Account (CESA) – formerly known as an Education IRA
- Real Estate
- Individual 401K Plans
Since self-directed investment allows you to choose from several investment types (Roth IRA, SEP IRA, HAS, Real Estate, etc.), they are by nature an accessible path to investment and wealth management. As long as you meet the basic requirements for the account you choose, you can begin investing when you’re ready, regardless of employer and often without a significant amount of money upfront.
8. It’s Easier Now Than Ever
Decades ago, gaining access to investment information and market insights wasn’t as simple as it is now. While the financial savvy may have had some luck, investing typically meant working with pricey brokers and hoping their decisions resulted in a profit. Today, however, the internet has democratized much of the information necessary to make well-informed investment decisions. Investors at all levels can log online and to do their own research, check real-time news, peruse investment resources, and even make transactions from their computer, tablet, or smartphone.
9. Self-Directed Investing: In Control But Not Alone
There are indeed plenty of resources available to help you make informed decisions about your investment strategy and your financial future, but that doesn’t mean that you’re on your own — at least not at Horizon Trust.
Not only does Horizon Trust offer invaluable online tools and educational resources, but we also offer guided investment assistance so you can make informed decisions at every turn.
Our team of experienced financial, investment and legal experts can help you navigate your self-directed investment journey from beginning to end. Whether you just need some help getting started or want to adjust your investment strategy to adapt to changes in employment, investment opportunities, medical concerns, or general changes in your retirement plans, Horizon Trust is standing by to help you achieve your goals.
Saving for retirement has become a traditional financial practice, but that doesn’t mean your efforts to do so have to be the same. Self-directed investing gives you the power to take control of your financial future without relying solely on a one-size-fits-all approach. And it’s this path that gives you options to leverage the non-traditional investment strategies that may lead you to early retirement. Contact us today for additional information.