Why You Shouldn’t Invest in a Self-Directed IRA

 |  General Self-Directed IRAs, CEO's Blog


By J.P. Dahdah, Vantage Founder & CEO

I share the benefits of Self-Directed IRAs (SDIRAs) every day.

How they give power back to the investor. How they allow you to invest your IRA outside the stock market. How they diversify portfolios in good times and bad.

But today, I want to talk about the downsides.

Traditional IRA investing doesn’t meet the needs of every investor. And the SDIRA, despite its many upsides, isn’t the right option for everyone either.

Namely, SDIRAs are a lot of work.

As the name implies, “self-directed” means the IRA owner is personally accountable for choosing and managing their investments. That means freedom and ownership. But if you aren’t comfortable with this level of responsibility over your investments, SDIRAs might not work for you.

So, let’s take a look at the #1 reason you shouldn’t invest in an SDIRA.

Traditional Brokerage IRA: Done For You

Traditional IRA brokerage companies are focused on one thing: automation. The industry was built in a digital environment where buying and selling is done online. With the ease of a few clicks, your transaction is complete, any time, day or night.

Monthly retirement savings are typically invested via “dollar-cost averaging” through automatic ACH debits from your IRA account. This investment concept taps into the principle of reducing the average per-share cost and overall impact of market fluctuations.

And with your IRA’s stock market holdings valued daily and delivered to mobile devices, you are never more than a swipe away from a clear snapshot of your portfolio.

That’s not the case with SDIRAs.

Self-Directed IRA: Do-It-Yourself

SDIRAs are focused on giving the account holder control.

Alternative asset custodians and administrators, like Vantage, help facilitate your investment transactions. Holding the private assets and providing IRA reporting services required by the IRS.

But the SDIRA account holder is solely responsible for passing along all the necessary paperwork required to properly process their account transactions. And, unlike with a brokerage IRA, this process is not automated.

That said, managing your SDIRA requires manually completing a significant amount of paperwork multiple times a year. For example, every time you choose a new investment or sell an existing asset, it’s your responsibility to fill out the required forms and supply the proper documentation. You’re also required to submit your Fair Market Value (FMV) form each year for all the assets held within your IRA.

Which is why I stress the fact that SDIRAs are not for everyone. But to reap the immense benefits of the investment returns I expect my IRA to produce, I’m willing to put in the work.

How Vantage is Making SDIRA Management Easier

Times are changing. New technology is replacing some of the manual aspects of managing an SDIRA. With the emergence of alternative asset marketplaces and technological innovations such as blockchain, it’s a matter of time before most of the hard work that comes with being an SDIRA investor is eliminated.

At Vantage, our team works to continuously improve our clients’ online experience. Our goal is to increase our digital capabilities, while reducing the paper-intensive aspects historically associated with SDIRA ownership.

To help achieve that, we now offer our clients the ability to complete transactions electronically through our secure client portal. I highly encourage all Vantage clients to log into the portal and familiarize themselves with its functionality. Clients can submit transactions, pay invoices, update their contact information, view statements, and transaction history.

We’re excited to keep simplifying this process by adding more features in the future.

A Little Work Goes a Long Way

As with most choices, there are tradeoffs.

Fully understanding the value of SDIRAs means embracing the benefits while navigating the transactional burden. Personally, I think the positives of SDIRAs outweigh the negatives. But each account holder must decide for themselves if the investment (of time and energy) is worth the return.

I’m hopeful technology will continue to lower the cost of financial freedom. In the future, we may see a world where traditional IRA accounts and SDRIAs are on a level playing field. Until then, at Vantage we’re doing everything we can to make SDIRAs accessible.

If you’d like help deciding if a Self-Directed IRA is right for you, or if you have questions about our secure client portal, please contact us at 888-459-4580.

Happy Investing!!