No other account in the world of retirement planning provides the control and flexibility a self-directed retirement account (SDRA) or Roth IRA does. Yet, with this freedom comes a great deal of responsibility: the responsibility to be in control of your investments.
If you are like the vast majority of investors, you might have chosen to sit on the default interest-bearing or money market option. It may appear that you have chosen a “safe” course of action, but that decision likely means that your account is losing value.
Here’s why—and what to do about it:
Value Erosion in Money Market Accounts
To the investor, money market accounts are more often than not considered a safe harbor. They provide liquidity and stability, but regrettably, there is a huge disadvantage to them: their returns are usually extremely low, barely beating the rate of inflation.
In today’s economy, with inflation rates in the 2-3% range, the one percent or less return typically achieved on money market accounts doesn’t manage to protect your purchasing power. This effectively means that your retirement savings are losing value, even if the account balance holds steady.
Indecision in investing can be as harmful as making poor investment choices. When you delay making investment decisions, your money stays idle in low-yield accounts, while potential growth opportunities pass you by. Every minute of delay translates to lost time in the market, where your money could be working, growing, and compounding itself.
This lost time is one of the most important factors that can impact the size of your retirement fund.
For example, if you’re leaving your money in a money market account earning 0.5% per year, but inflation is destroying the purchasing power of your money at 2-3%, you are losing money. It’s a little like draining off your own savings in slow motion. And, when left to compound over time, the effect on your retirement funds can be devastatingly large. Quite possibly, this shortfall is the difference for you between a comfortable retirement and one in which you are forced to make substantial lifestyle compromises.
In addition, indecision often means foregoing opportunity. After all, over the long term, the stock market has, in general, outperformed money market accounts. By being indecisive about moving your money into investments that are more growth-oriented, you miss the returns available when the markets rise and the good years of returns that have the possibility of being larger than average. The longer you wait, the more you’re cutting down the time period in which investments can grow—and the more they actually can’t grow.
Overcome Indecisiveness and Take Control of Your Financial Future
Eliminate indecision by getting educated. Learn about investment options. Learn the different risks and rewards of the different asset classes. Work with educated financial advisors who can help customize investment recommendations directly to your stated financial goals and your personal feelings about risk.
Then make your goals crystal clear and extremely actionable. Be specific about what you want to achieve with your retirement investing and when you want to achieve it. Nothing is going to help you get over the hump of hesitance and into action better than this kind of clarity. And remember, the sooner you start investing, the more time your money has to grow and compound, significantly enhancing your financial security in retirement.
Take action today, don’t risk the expensive traps of not making up your mind, and ensure that your self-directed retirement account, or Roth IRA, will make your wealth secure for a prosperous future. Make a decision to invest—invest smartly and watch your retirement savings grow to meet your long-term financial goals.
Default Risk
Defaults are just that—defaults. They are not tailored to financial goals or risk tolerance. Reliance on such mechanisms may cause a mismatch between your investment strategy and your retirement goals. If you do not take a proactive approach, chances are you will not grow your money to a level that fulfills your retirement dreams.
Making Your Money Work for You
Your retirement savings, if left in a default interest-bearing account or a money market account, may seem perfectly safe, but this is one sure way to lose value over time. Taking a proactive approach and investing wisely means putting your money to work for you, benefiting from the growth curve of compound interest, staying a step ahead of inflation, and building a sound retirement kitty.
Your future self will thank you today for making the effort to direct your self-directed retirement account toward meaningful, growth-oriented investments.
Do not let your hard-earned savings lose value—invest them today so that they will count.