Now that you have opened an IRA account, you must continue routine maintenance to make sure you and your IRA are on the right track. Here are a few ways.
I. Determine Your Retirement Needs
Answer that question, “Where am I, financially?” Ultimately, once you have a goal, it’s easier to determine how and how much you should invest. Younger investors who are not near retirement have more incentive to take more risk in their investments. Day-trading or shorting stocks within this account are not recommended, but there are many ways to capitalize on high-growth sectors of the economy without gambling on drastically changing positions.
Tip: If you need assistance determining where you are financially, check the Securities and Exchange Commission and find a plan to help you evaluate your financial situation. You should also take advantage of IRA calculators available through your financial institution. For a basic feel for where you are, you can visit this IRA calculator here.
II. Create a Plan
It helps if you have a plan to decide questions such as how much money you are going to place into which asset class, what rate of return you are expecting, and how you are receiving them. Also, along with creating a plan to match your needs, you should access your plan at least each year to see that it still fits your specific situation. Each quarter when you review your statement, see if you met your goal. If your goal isn't being met, it might be time to re-evaluate your investment. Read A Long Term Plan for Retirement for more details.
Here are some tips for managing your IRA account if you decide not to hire a professional. However, it is also beneficial to know these basic three tips if you do have a financial advisor as well.
- Conduct Research
When you are in charge of a self-directed retirement account, you are responsible for doing your own research on investments. If you have someone else help you with this, they will typically research for you. However, if you want to find solid investments, it will be completely up to you with this type of account.
- Watch the Risk
When choosing investments for your self-directed 401k, you should try to choose investments that are considered relatively low risk. If you are younger, there is nothing wrong with investing in some stocks. However, you want to exercise some caution when choosing every investment. With retirement funds, you do not want to risk losing them. This is the money that you will be living on at some point.
- Asset Allocation
Many investors like to allocate their assets based upon a certain ratio. For example, you might choose to invest and 60 percent in stocks and 40 percent in bonds. You will need to rebalance your portfolio several times a year in order to keep these ratios intact.
III. Keep Updated on what is Happening with Your Investments Every Quarter
You should continuously check the progress of your mutual funds and see if you're comfortable with your asset mix. Also, pay attention to the market. If the market is doing poorly and your investment is still strong, you probably have the investment strategy that's right for you. Ensure that the manager is managing the fund as you expected. If it diverges from your original goal, find out why the manager has invested in different stocks. One clue to the fact it's changed is comparing the performance of a mutual fund to an index(i.e. small cap, large cap, etc.) that covers the category you think best represents what that fund should be doing.
Tip: If you are confused or need direction, to speak to a professional. You do not have to hire them to manage your account, but they can get you started with inside tips or general professional advice. However, if you are looking for a financial planner, check for credentials such as certified financial planner, chartered financial analyst or a member of the Financial Planning Association. Many certified public accountants also provide investment advice. Before choosing a company, find out if they charge any yearly maintenance and/or trading commission fees.
To keep up with managing your IRA, even if you have the right types of investments in your IRA portfolio, you may have too much of some and not enough of others. Doing an annual rebalancing of your IRA assets will keep your exposure to market risk in line with your overall plan.
IV. Participate in Employer Retirement Benefits
Some employers offer 100 percent matching programs if you invest a certain percentage of your paycheck. If you take full advantage of this program, you could double the money that's working towards your retirement in your Roth IRA.
Tip: With this, you must also be wary that with frequent job changes, it's common for people to have many 401(k) accounts and other employer-sponsored retirement plans from previous employers. These multiple accounts can have hidden fees or be difficult to keep track of. You can simplify your life by rolling them over into an IRA.
V. Assess Your Loss, if Necessary
At times, it may be a better move to claim a loss that occurred in your Roth IRA. A professional can help you determine when this is a good idea and the regulations that apply. If your Roth loses money shortly after you converted from a traditional IRA, your best choice is probably to undo the conversion. Two other options are for you to liquidate your IRA or you can claim capital loss deduction for your IRA account.
For more information, visit Publication 590 which further discusses individual retirement arrangements (IRAs).