Pros and Cons: Self-managed vs. Managed IRA

Planning for your retirement can be a stressful and laborious task. There are many investment products to choose from and doing your due diligence will help to ensure that you are getting everything you can from the retirement plan(s) you end up choosing. 

All retirement plans come with their own lists of pros and cons. What might work for one person may be detrimental for another. What was a sensible choice two years ago may no longer be in your better interest if the circumstances of your employment have changed.

Deciding between a self-directed IRA — also known as a self-managed IRA — and a managed IRA — usually found at broker dealers — isn’t always easy, but, in the long run, can make a significant difference in how your IRA performs. 

What is a Self-Managed IRA?

A self-managed IRA account can be either a Traditional or Roth IRA if you are an individual investor. Small business owners also have the options of SEP and SIMPLE IRAs. Self-managed retirement accounts allow for greater portfolio diversification and therefore more flexibility for the investor. 

Unlike managed IRAs, self-managed IRAs are directed by you, the investor. This is done through an account custodian where your IRA is set up. While self-managed IRAs do give the investor more freedom, it also comes with more responsibility. To make informed investment decisions it is crucial that the account holder do their due diligence. Being savvy about investments is an indispensable part of self-managing your retirement plan. 

Aside from having more control of your financial future, self-managed IRAs come with some additional benefits. While you can invest in a wider range of things, there are some investments that can’t be made with any IRA, such as collectibles, art, gems, and some precious metals.

What is a Managed IRA?

A managed IRA is an IRA that is overseen by a money manager or broker. A manager buys, sells, and trades investments on your behalf and doesn’t require prior approval to do so. There are some great benefits to having a managed IRA. If you are not a shrewd investor, trying to determine what to invest in on your own can be a daunting task. It’s nice to have a professional investor in your corner, someone with extensive knowledge of markets and market trends. Account managers often utilize algorithmic trading programs to minimize the guesswork in making your investments, technology that your average investor does not have access to. 

What are the Similarities and Differences?

The obvious answer is that one IRA is managed and the other is not, but there is a bit more to it than that. 

Managed IRAs are restricted to traditional investments such as stocks, bonds, and mutual funds. There are more options available with self-directed IRAs or self-managed IRAs. It is imperative to do a lot of research when considering a managed IRA. While a managed IRA can help alleviate stress by taking the decision-making out of your hands and putting it in the hands of a professional, you have very little control over how investments are executed. Managed IRAs can be more expensive than self-directed ones. There can often be steep minimum investment requirements that must be met to set up a managed IRA. 

While a managed IRA can help individual investors who invest in stock that they’re familiar and comfortable with, having a manager can also help get investors out of their comfort zone and explore new investment opportunities.

Self-managed IRAs offer more in terms of timing an investment. If you’ve investigated a company and feel the private stock price is set to go up at a certain time, it’s helpful to be able to execute the trade on your own instead of going through your account manager. Even though self-managed IRAs are a little more work, many people feel it’s worth the effort.

What Should I Take into Consideration?

One of the most frequently overlooked factors when determining the right IRA for you is time. Just because you are well versed in trading and investing doesn’t mean you have the time to do it. Researching potential investments takes a lot of time and dedication. Restoring a ‘59 Cadillac Eldorado seems like a great idea when you pass one for sale but, more often than not, that car will sit in the driveway for years. Having a realistic idea about what is possible for you to take on will save you time and missed opportunities. 

How Can IRAR Help?

IRAR has been helping clients reach their retirement plan goals for almost 30 years. We are a dedicated team of experts that offer self-directed investing education and explanation of the rules and regulations governing retirement accounts. We make self-directing your account easy.

If you are ready to take the next step in planning for your future, IRAR is here to help. Book a free consultation with one of our experts.