Before you decide on alternative investments for your self-directed IRA, it pays to understand yourself through the eyes of “behavioral finance.” Behavioral finance is all about understanding your personality as it relates to your investment decisions. You could say the first step to a successful investment journey is to know your investment personality. Some people are more careful, while others are impetuous about investing. You are either anxious or confident when it comes to the stock market as well as alternative investments. Using a truly self-directed IRA with checkbook control appeals to a wide range of investors described by experts as straight arrows, guardians, celebrities, adventurers and individualists.
Invest in what you understand
Warren Buffet, one of the wealthiest men in the world, once said he won’t invest in something he doesn’t understand. Although there are a lot of alternative investments that don’t make sense to the average person, you have the choice to only invest in what makes sense to you or to learn more about the assets. It’s best not to rely on the advice of friends who offer tips about different investments. While a lot of people joined stock market clubs or listened to stock market tips during the dot.com bubble of the late 1990’s, many people lost friendships when the market crashed. It’s not any different with alternative investments.
Do your own research and rely on the advice of experts rather than friends or work colleagues. When it comes to new investment ideas I constantly see investors make the mistake of relying on their trusted friends or their accountant. Intelligent conversation over a beer is not exactly wasted time, but it shouldn’t substitute actual research. If you are relying on a paid professional, make sure they have experience on the subject matter and make sure they are paid (their opinion might be worth what you put into it). Most importantly, make a conscious decision that you are either going to research and understand your investment strategy, or that you will rely on professionals to make decisions for you.
Know what is possible
Whether you are more confident about investing or a bit reserved, it’s critical to know what is permissible in a self-directed IRA. Some of the most common alternative investments include gold, real estate, notes and oil and gas options. But you can also invest in futures trading, foreign currency, businesses, timber, crowd funding, equipment leasing and cattle. It’s up to you to make sure the Alpaca farm you want to add to your self-directed IRA portfolio is legitimate and viable.
Some investors just need a safe and steady income to stay above inflation and earn a little bit of profit while others
Avoid prohibited transactions
You will also sleep better at night with a truly directed IRA when you know the IRS rules for prohibited transactions. As a general rule, you can’t invest in self benefitting assets but instead in assets that will benefit your IRA. Don’t buy a rental property for your children or parents and other disqualified people. If you personally benefit by using your rental property as a part-time vacation home or letting your children live there, you will lose the tax advantages of a self-directed IRA. Ultimately there are only 6 prohibited transactions you should be aware of.
Have fun with alternative investments
By working with your investment personality instead of against it, you can have more fun investing. The individualist investor takes a DIY approach. A truly self-directed IRA that includes checkbook control is perfect for the careful and confident individualist. If you are an adventurer who is strong-willed, you will also enjoy the freedom that comes with a check book IRA. For those with a celebrity investment style, it’s all about embracing the latest investment trends. Guardian types avoid taking risks, which is why they often gravitate to more predictable alternative investments such as gold and rental properties. If you are a straight arrow, you have a mix of characteristics from all the different styles so fill up your self-directed IRA with a lot of alternative investments.
At New Standard IRA, we enjoy helping everyday individual investors take charge of their financial destiny with a variety of self-directed IRA products. Whether you feel interested in setting up a Roth IRA LLC or traditional self-directed IRA LLC, we are there to guide you. We specialize in self-directed IRAs for people who want alternative investments for their retirement accounts. For more information about alternative investments that let you sleep at night, please contact us.