Let’s talk about all of the “financial freedom” that investment platforms are offering these days.
As an armchair libertarian, I’m all about the concept of ruggedly taking my life into my own hands. The reality is that I don’t want the fire department to go anywhere.
So when I hear a solid investment platform like Webull offering individual retirement accounts (IRAs), I’m skeptical. No, I’m not scared of the app defrauding me or anything. I’m petrified of what will actually happen if I self direct my IRA and screw it all up.
Fortunately, I was brave enough to take the leap in my younger days. I can provide you with a firsthand perspective of what self-direction means to me and why I might caution against it — for certain personalities.
My First Account Blowout
My first blowout was in an IRA. I started off with the best of intentions and the most conservative of plans. I would only invest in blue chip stocks. I broke my sell button. I would not move any money out of the account until retirement, not even when the government says I can do so for free.
This plan lasted all of 6 months.
I was doing really well in my brokerage accounts swing trading and scalping at a fairly high frequency. As the numbers between my IRA and other accounts widened, I began to believe I was a better trader than I was. It didn’t help that the government limits deposits to IRAs. If I wanted to grow that account, I had to trade for it.
So I started trading in my IRA the same way as my other accounts. Actually, that’s a lie. I began to speculate more heavily in the IRA. The total dollar amount was lower, so I felt I had to try harder. I also thought that the options level 1 limitation on IRA accounts would protect me from my own stupidity. I ended up completely tanking the dollar figure by investing in some small-cap puts, watching the company tank, having the puts execute well below my strike price and the stock hasn’t pumped since.
The Lessons of Self Direction
I had to ask myself if I really had the personality to manage an IRA. (Hint: No.) Maybe this isn’t a proper protocol for a writer, but I’ll admit that I have yet to fully mature as a trader. I still revenge trade after a big loss. I overtrade out of boredom sometimes. I size up after a few wins only to give it all back. I have yet to define myself as a dedicated scalper or a swing trader and commit to mastering those techniques specifically.
The bottom line: I need help when it comes to maintaining an investment strategy for any extended length of time. This was tough to tell myself but after 2 more blowouts, I finally had my come to Jesus meeting in the mirror.
I’ll give you my perspective on the kind of personality you should have if you want to self-direct your long term or retirement accounts:
- A calm emotional demeanor — I’d say you need to be a level headed person not just in investing, but in life. How do you respond to life’s small inconsistencies and hiccups? If you tend to escalate feelings, you may want to entrust your retirement account to an algorithm or a professional.
- A 50-year plan — If you can’t take the time to draw up how much money your IRA should have in 5 decades, what you will do with it after retirement and who it goes to after you are gone, you should not be trading in an IRA. Before you trade one stock, you should have your will filed at your attorney’s office and a life insurance plan.
- Mastery of an investment style — Have you defined yourself as a particular kind of investor? Will you base the growth of your long term portfolio on capital gains or will you employ covered calls?
- High-risk tolerance — Experts tell us the boom-bust cycle is accelerating. If you plan on looking at your own investments for decades, you need to be able to weather the storms without changing your plans.
- A true love for investing — The economic cost of self-direction over delegation is negative unless you love the process of investing, not just the rewards.
Pulling Yourself Up by Your Bootstraps
It seems the way for investment platforms to grab market share is to offer users control, diversification and ease of use. Have enough self-control to know if you need to diversify the management of your portfolio for ease of life. You don't have to be a gunslinger who personally watches every penny of his portfolio build. You have a life to live, and your personality may be better suited for other things.
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