Photo Credit to Marion
- Understand the Difference between Savings and IRAs – Your IRA account is made for holding investments for the long term like stocks, index funds, and REITs. Most brokerage accounts allow you to buy any publicly traded stock, and invest your remaining cash balance in their high yield money market fund automatically.
- Set Your Investment Goals Upfront – Lack of investment goals is what causes all those fees. Decide what your goals are (long term appreciation, income, broad safety), plan out your asset allocate, then do it! I recommend buying common stocks, real estate investment trusts, or passively managed index funds. Best of all, they are the cheapest way to invest, which over time will boost your overall returns.
- Think Long and Hard about Where you will open your IRA – You must do tons of preliminary research before choosing where to open your IRA account. Examine any upfront fees, account minimums, recurring fees, etc. I recommend opening your IRA with a brokerage firm because you have the most investment options at your fingertips.
- Consult with a Fee-Only Financial Advisor – Never ask a barber if you need a haircut. It’s best to seek financial guidance from advisors who have zero financial interest in where or how your money is allocated. Find a fee only financial planner if you need one.
- Listen to Your Gut Feelings – Make sure you feel 100% comfortable with an investment decision before making it. Don’t let anyone force you to make a decision. Your best financial advisor is you, so step back and listen to your gut during moments of indecision.
- Beware Investing in Too Many Mutual Funds – I know some of you will flame me in the comments with all your theories on why mutual funds are smart investments. First, let’s be serious for a moment: Do mutual fund managers invest for your future or for the glory of being rated top fund of the year? IRA accounts contain investments for the long term, so why is your money bouncing around in some mutual fund manager’s short sighted, speculative fund? You can beat these guys handsomely by buying low cost index funds or building a portfolio of simple companies that you understand.
- Invest Automatically – It’s so easy to setup automatic transfer, buy your investments automatically, then sit back and get rich over the long term. Eliminate all short term investments for your IRA, supercharge it with quality long term holdings, then spend your time doing the things you love.
Putting Information into Action
Circle a day on your calendar and spend the entire day sorting this stuff out. Go over all your retirement accounts and get control of what’s going on. Seek counsel from a fee-only advisor if you’re lost, dispute discrepancies on your monthly account statements, and consider adopting a passive investment plan.
While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.