There’s a maxim about taking action that applies to the world of Self-Directed IRAs as it does many other investments: “The best time to plant a tree was twenty years ago. The second-best time is today.” It might sound discouraging, but this quote gets to the heart of what will make you a good investor. It’s not about timing the market if you want to be a great investor. The best investors are those who understand that consistency—starting now—is the only way to move forward. As a Self-Directed IRA investor, your best chance at a happy, prosperous retirement isn’t to wait to find the perfect entry point. It’s to get moving.
Why You Shouldn’t Try to Time the Market
Charles Schwab once conducted a study about timing the market that had some interesting results. The study looked at five different hypothetical approaches to the stock market:
- Perfect timing
- Investing immediately, using the same amount monthly
- Dollar cost averaging
- Poor timing
- Someone who stuck to only cash investments
As the study showed, the investor who had perfect market timing performed very well—the best, in fact. But what was interesting about the results was that the second-place performer wasn’t too far off the mark.
That second-place performer: the immediate investor. The individual who put aside some of their money as soon as they had a paycheck every month.
If you were simply to invest wisely, over and over again, your timing would not matter nearly as much as you might think it would. That means that one potential answer to the question—when the best time to open a Self-Directed IRA account—is simply: right now. And to keep investing with that account, over and over again, with total consistency.
But What About Self-Directing and Non-Traditional Retirement Assets?
The above study looked at investments in the stock market. But what about those investors who want to make non-traditional investments, such as real estate, precious metals, tax liens, and private stock?
As with any other markets, there may be “ideal” times to enter—times in which assets are relatively cheap. For instance, someone buying a home at the bottom of the real estate market in the Great Recession might have been able to secure a large amount of property for less money.
But that should not be prohibitive to making your first move to open a Self-Directed IRA. For starters, you never know when the current moment is good timing.
Consider the area of real estate, which you can use as an investment vehicle within a Self-Directed IRA. It is possible to wait until a buyer’s market, which is typically during a time of low real estate prices in which sellers are having difficulty getting anyone to buy up their properties. You can browse active listings and pending sales in your area to get an idea of when is a “buyer’s market” in your region. Additionally, a site like Zillow will let you enter in a specific area and will tell you the overall state of the market.
But keep in mind that business cycles aren’t always so predictable. Even if we’re in a “hot” seller’s market right now, waiting to invest in real estate with a Self-Directed IRA can mean that you end up waiting far longer than you initially imagined.
The good news: if you want to Self-Direct your own IRA, there’s no need to worry about the timing; you don’t have to make contributions or investments right away. Even so, keep that axiom in mind: the best time to plant a tree was twenty years ago, and the second-best time is today. You can get the process started today. Call us at 866-7500-IRA to find out more about opening a Self-Directed IRA.