Should I Get A Self Directed 401K Plan?
Sunday, October 25th, 2009Usually a 401k investment plan is a retirement plan that you can deposit money and leave all of the investment decisions up to a hired professional. But that is not the only option you have available.
Some plans allow you to direct your account yourself. This means that you decide which investments are the best, and play a more active role in how your retirement account is invested.
Should you switch over to a self directed 401k? This is a tough question and is different for each individual.
Some plans do not even let you direct your own account. Many that do only let you invest in mutual funds. While there are a large number of different types of mutual funds out there it can still be limiting to only choose among them.
After all that means you took the time to set up a self directed 401k account only to have to option of deciding which mutual fund should invest your money.
Still there are a some plans that allow you to invest your money and allow you to invest in things like individual stocks and bonds. But that causes a new problem, what if you invest in the wrong companies and end up completely destroying your retirement account?
It is a real possibility, especially for someone who is new to the stock market. The average person might have the tendency to invest too much of their money on a “sure thing” right before that “sure thing” goes bankrupt.
So how do you know if it would be wise to manage your 401k yourself? One thing you could do is to learn how people make money in the stock market and open up a paper account for a year or two.
After all there is no way to better learn something then trying the real thing. And the best part is while you practice investing in the stock market through a paper account you are not actually risking any money. You can take your account to zero and not be affected.
If you do start outperforming your 401k however and feel like you can do a much better job at managing your retirement account you might choose to switch over to a self directed plan. Just remember that your retirement account should not be put in extremely risky situations.
Perhaps a better way to go about it is to leave your 401k alone and open up a separate account in your name. This way you can invest money and not be restricted by what you can and cannot invest in. It also gives you security, if you have a separate account for your personal investments and you make a few bad decisions then at least your retirement money will not be affected.
In the end it is up to each individual whether they want to play an active role in their account, or just let the professionals worry about it. But remember if you do decide to take charge of your account you are assuming full responsibility for profits or losses you may take.
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