3 Tips for Navigating the Uncharted Territory of Self-Directed IRAs

Published on April 23, 2012

With self-directed IRAs really hitting home as a viable investment option not only for the wealthy, but also the savvy layman, there’s been a lot of press, both positive and negative. Investors are finding themselves in a market that requires a lot of know-how and due diligence, and can be lured into a false sense of security by fraudulent investments targeting self-directed investors. Here are a few things to keep in mind when opening your self-directed IRA.

photo courtesy of Kay Gaensler, used under creative commons license

You’re on your own – When it comes to self-directed investments, the first part of the word is self. In traditional brokerages, you typically have an investment advisor telling you the who, the what and the why; you’re relying on an expert in these areas to lead you to greener pastures. With a self-directed IRA, the decision maker and “expert” is you. It’s up to you to pull the trigger on the next greatest investment. Your self-directed IRA administrator/custodian can’t provide you with any advice, whether it be legal, financial or investment. The responsibility lies on your shoulders to make your own decisions.

Invest in what you know – It’s riskier to invest in something you know nothing about than it is to invest in your own field of expertise. Do you consider yourself a real estate mogul? You’ll need to know the basics on what to look for, who to talk to, what areas have good buys and who you can rely on to help you out. Have you made a lot of money investing in hedge funds? Then check out performance portfolios, compare funds and vet your sources, like you normally would. If you want to break new ground, that’s also great—you’ll just have a lot of learning to do in addition to IRA education. Consult your team of advisors and arm yourself with information.

Know what to expect from your self-directed custodian – We’ve already mentioned that self-directed custodians should not be providing any investment advice. We will not research your asset, tell you what is a good idea or not, and nor should we–you hired us to be an unbiased third party for reporting and recordkeeping, not to make your investment decisions. The glory of self-direction is that you’re not leaving your future in someone else’s hands; but we will need you to provide us with paperwork so that we may properly document and report your investment. It’s up to you (noticing a trend here?) to provide us with the information requested, and to keep your account up to date with the fair market value. Be wary of any self-directed custodian claiming to guarantee any investment strategy or asset.

A self-directed IRA is a vehicle that can provide a foundation in that sea of retirement uncertainty, provided that you are properly equipped. For additional tips on arming yourself against fraud, please visit our frequently updated Investor Awareness Resources and keep an eye on this blog.

Back to Blog