Risks with Self-Directed Investing

 Even as returns in the equity markets level off to more historical averages, evidence is emerging that more and more people are increasingly turning to non-traditional or alternative investments. With self-directed investing, investors can use the cash in their retirement plans to choose from a variety of alternative investments that have potentially higher returns with less risk to your principle, and at the same time reap the benefits of real portfolio diversification not typically available with traditional investments.

1. Lack of proper due diligence. It’s easy sometimes to get excited about a potential opportunity. When something seems too good to be true, it probably is.
2. Not using professional guidance. Self-directed investing gives you control over your investment decisions and financial future, however, it doesn’t instantly give you the experience and knowledge regarding tax and contract law.
3. Stay away from self-dealing. There are many instances where the IRS will consider a transaction to be self-dealing. If you purchase any stock in a corporation that is closely held by you, the IRS will deem the transaction as self-dealing. Another example is using the funds in IRA accounts to purchase a vacation home that will be used by you.