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Self-directed IRA setup checklist and basics


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Congrats on completing your rollover! You’re done with the hard part. Now, let’s make sure your IRA is set up to achieve your retirement goals.

To help get you started, we’ve made a to-do list for your new IRA and answered a few common questions.

Self-directed IRA checklist

  • Make sure you pick your investments Opening an IRA and depositing your funds does not necessarily mean your funds are invested. For a self-directed IRA, you need to choose what to invest your assets in. Don’t let your hard-earned money sit there idly – invest it so it works for you! 
  • Evaluate your asset allocationYou have a lot of investment choices – stocks, bonds, and even crypto and other alternative assets. Generally, an allocation with more stocks is set up for more growth. This is best for people who are further from retirement. The older you get, the more you should consider bonds and cash to lower your risk as your retirement nears. If you invest in mutual funds and ETFs, make sure you know what’s in them to get an accurate understanding of your whole portfolio’s allocation. Periodically revisit your allocation to make sure it is still in line with your age and retirement goals.
  • Look into your investment expense ratios The expense ratio indicates how much you’ll pay in fees to invest in the asset — the higher the expense ratio, the more you pay in fees. As a rule of thumb, a mutual fund charging more than 1% would be considered on the higher end. ETFs should have lower expense ratios (Fidelity’s popular SPY has an expense ratio of 0.09%). There are plenty of low-fee options – don’t let your savings get eaten up by high fees. 
  • Plan your future contributionsRemember, you can keep contributing to your IRA each year. Try to avoid waiting for the end of the year to contribute – the earlier you contribute, the more time your assets have to grow. Just make sure you review the IRA contribution rules to stay within IRS guidelines.

Finished with those tasks? Time to sit back and let your investments work for you. It’s still a good idea to periodically review your account to make sure everything is in order, especially since your asset allocation may shift over time.

IRA basics and some common questions

Q: I transferred funds into my new IRA — is my money automatically invested? 

A: The simple answer is: no. An IRA is an account, not an investment;. Self-directed accounts require you to make your own investments, so you have to choose where to invest your money. If you don’t, your money will likely remain uninvested, meaning you won’t benefit from long-term investment growth.

Q: What is asset allocation? What do I need to know?

A: First, asset allocation is just how your funds are split across different investment types. There is no single right allocation strategy – the details will depend on your personal circumstances and risk tolerance. Since you chose a self-directed IRA, you will be responsible for deciding your portfolio allocation. So, here’s an overview of the key things to know when allocating your IRA assets:
  • Stocks, bonds, cash, and alternatives: Generally, your portfolio will be made up of stocks (for higher growth), bonds (for more conservative growth), cash (for liquidity), and maybe some alternatives like cryptocurrency. So, in practice, your allocation will be split among these types of assets.
  • Diversification is key: Diversifying your investments across different asset types is a smart way to reduce your risk exposure. For example, you wouldn’t want to put too much of your portfolio into a single company’s stock, since that would leave you open to significant risk.
  • Mutual funds and ETFs can be a strong foundation for your IRA: Unless you are a full-time investment analyst, you probably don’t have time to research and monitor a full portfolio. Mutual funds and ETFs can do a lot of the work for you – they’ll help keep you diversified and can deliver healthy growth.
  • Age is just an (important) number: If you’re young and far from retirement, you’ll likely want to optimize your IRA for growth; this means more investment in stocks (e.g. an S&P 500 ETF). As you get older, you may want to lower your IRA’s risk with more investment in bonds and cash.
If you’re interested in learning more, check out our curated selection of retirement resources to help you through the retirement planning process.

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