If you know anything about Roth IRA’s you’re probably aware that there are a number of options for the investments that make up the portfolios of these retirement accounts. There are common stocks, bonds, mutual funds, and CDs. Often a Roth IRA will be diversified among a number of these different investment types. People who have experience specifically with picking winning stocks may wish to handle their choice of stocks to include in the Roth IRA and even focus exclusively on stocks, ignoring the other investment types. This is a bit of a riskier and more maverick approach than having, say, a diversified portfolio that is managed by a fund manager. It can prove more profitable, especially when good stock choices are put together with the tax advantages of a Roth IRA, but generally you really need to know your stuff.
The following are some criteria you should meet if you wish to purchase individual stocks for your Roth IRA account.
Understanding of Stock Market Basics
If you’re going to pick winning stocks, at the very least you need a good understanding of stock market basics. This applies to ordinary stock investing, of course, as well as stocks for Roth IRA accounts. Much of what appears to be advanced knowledge is basic knowledge that is fine tuned and tempered with experience. With this in mind, get a good fundamental knowledge of stocks that can then be made more sophisticated as you learn how stocks work in the real market.
Willing to Research Stock Investments
Man stock purchase choices that are made in the context of a Roth IRA are made by the mutual funds managers or stock brokers hired by banks and not by the individual him or herself. This is at least in part due to the fact that the owner of the Roth IRA often doesn’t have the time to carefully research the wide range of stock choices available. So if you are going to pick your own stocks for the IRA, you’re going to need to acknowledge this extra time demand of looking into the background of stocks you are considering and making sure they are the right choices.
Good Decision Making Ability
You also need to be decisive and skilled at making decisions. There is always uncertainty in the stock market and the only way to balance this out is by having a certain amount of confidence in your own ability to assess the right stock choice decision in a reasonable amount of time. There are emotional factors involved with this as well as intellectual and experience based ones.
General Business Experience
General business experience is also very helpful here. The Roth IRA can be thought of as a type of business. Managing a stock portfolio is in many ways akin to running a business in that you need assess the entirety of the undertaking of trying to earn profits with your stock choices. Gains need to be weighed against any banking costs and fees as well as average losses of stock value to arrive at a sense of how well your Roth IRA business is doing at a given time and what its profit margin is.
Ability to Choose Stocks that Exceed Market Averages
Finally, you simply need to have the consistent ability to choose stocks that do better than the market average. Even fund managers can find it challenging to beat market averages. This should be your goal. If you don’t achieve this, there is little purpose in choosing your own stocks. If the extra time put into choosing stocks doesn’t result in profits that exceed that which a fund manager would be able to show, then why take this route? The whole purpose of the Roth IRA is to make money that you can use both now and after retirement and you’re going to need to do just that with it in order to demonstrate that the Roth IRA is worthwhile. Just know that penny stocks is a whole different thing and we will need a whole guide on that topic.
To conclude, it is possible to increase your Roth IRA profits by focusing on the stock market and making stock choices yourself, but it is not something that just anybody should necessarily do. There is knowledge and experience involved and in order for this approach to be worthwhile, you need to make consistently good stock decisions. So take all this into consideration before employing this Roth IRA investment approach.