Markets & Investing
Why Self-Directed IRAs May Be Your Key to a Comfortable Retirement
04 Dec 2014
With the average person working well over 40 to 50 years in their life, they set aside a small amount of funds for their retirement. To ensure a better retirement, many individuals place their savings into retirement funds, allowing them to gain profit on the savings they make and thus enjoy a better retirement.
A self-directed Individual Retirement Arrangement (IRA) is one of the many arrangements people make for their retirement. It allows them to have greater control over their retirement fund, allowing them to shape their retirement as they will. Here is a closer look at self-directed IRAs and why they may be your key to a better, safer and comfortable retirement:
Benefits
Gain Greater Control over Your Future
As the name suggests, possibly the biggest benefit of self-directed IRAs is the account owner can direct their funds into any securities they want. As a result, they gain greater control over their risk, returns and, evidently, their future. This helps them choose securities and investments they know about, thus providing a host of benefits, such as greater return and control.
They Offer Greater Returns on Savings
Unlike regular retirement funds, where the account manager has control over the investments, self-directed IRAs give the owner greater control of them. As a result, they can expand or shrink their account’s investment portfolio. By doing so – directing greater investment in certain securities – account owners can acquire greater returns on their savings.
They Diversify Your Investments
With the ability to direct your retirement fund into a specific or broad range of securities, self-directed IRA owners can diversify their investments and thus hedge their risks against poor performing securities or market problems. As a result, their retirement fund continues to grow, even if a security underperforms.
Limitations
It’s as Risky as It Is Beneficial
While they may provide greater profitability, self-directed IRAs still follow a major underlying financial principle: the greater the risk, the greater the return. As such, while it does give the account owner the ability to earn greater returns on their savings, it also opens him up to greater risk and thus greater loss.
Your Investments Doesn’t Allow Ownership
While they may be highly beneficial, they do not allow you to own a company, home or certain other securities. For example, if an owner directs a significant portion of their funds into a small company, they cannot own it through the IRA.
It’s Not for Everyone
In truth, a self-directed IRA is not for everyone. If you do not have the expertise to choose securities, it is better you stay away. Moreover, certain prohibited transactions are prohibited by the IRS – make sure you do not plan to invest in them before acquiring a self-directed IRA.
They allow you to hedge your risk, improve your returns and/or allow you to better shape your retirement. As such, self-directed IRAs can be one of the best choices you make for your retirement, provided you know what you are directing your investments into.
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