3 Ways Self-Directed IRAs are Putting the Control Back into Investor Hands
IRAs are popular with Americans, there is no question about that. As of 2020, over 47.9 million Americans, or about 37.3% of households own a traditional IRA, according to research from the Investment Company Institute. It’s clear to see that the financial perks of these accounts are well-known, and each year more and more people open their own IRAs and Self-Directed IRAs to take advantage.
Whether you are new to the world of IRA investing or have been saving with one for decades, you may have never heard of a Self-Directed IRA and are wondering what exactly it means. In short, Self-Directed IRAs function just like regular IRAs in terms of the standard rules and regulations, but they offer more investment options and unique benefits. Most brokerage firms stick to ordinary investments, so the key to saving with a Self-Directed IRA is first finding a reputable company that specializes in them and understands what makes them so powerful. Explained below are a few benefits.
More flexibility with investments. Self-Directed IRAs exist to give investors more options for asset growth besides a typical stock, bond, mutual fund, or CD. Some investors may know about a start-up business or rental property that they would like to invest in, but find it isn’t included on their list of available options with a more traditional custodian. With Self-Directed IRAs, investors have more control over what they invest their money in, even if they want to invest it in real estate, promissory notes, or other private commodities.
Personal Expertise. If you work in a particular field or participate in a unique hobby, you can use your expert knowledge to make smarter investments. For instance, a realtor has greater knowledge about real estate than the average person and can easily spot a good deal when they see one. Using a Self-Directed IRA provides more investment choices to a person whose niche isn’t included within average IRA options.
Greater earning potential. Because investors who utilize Self-Directed IRAs are usually more knowledgeable investors, they have the potential to earn big time with particular investments. They can spot trends in their market and know when to jump in the game. A savvier investor can take advantage of the more open choices available to them and invest in a business, niche, or commodity otherwise not accessible to them or anyone else through a standard IRA.
While Self-Directed IRAs can prove a useful tool for certain people, novice investors may want to educate themselves in a particular field and gain more experience within the market before utilizing this option. Just as these accounts can have greater earning potential, they tend to be a higher risk option for investors who don’t know what they’re doing. To remain compliant with all IRA rules and regulations, it’s important to be aware of what you are allowed to do with your account and to understand what (and who) is prohibited. As long as you follow the rules, do your homework on the investment, and have a knowledgeable custodian that you’re working with, you’ll be able to put the financial control back in your own hands while never missing out on the perfect opportunity again!