Do your Due Diligence with IRA investments - 2023
The spring of 2023 has had some of the worst financial instability in many years. This should give us pause on all of our future and current IRA investments. These changes create opportunities, both good and bad, for investments. Now is the time, more than ever, to be on the lookout for scams and other untrustworthy fraudsters. This article will help with IRA investment scams and fraud prevention.
Do not let your IRA account fall victim to one of these bad investments. Unfortunately, we live in a world that is full of scams and schemes and people attempting identity theft. According to a report in 2019, U.S. investors held about $8.8 trillion within their IRAs. This significant figure makes IRAs an attractive target for fraud. It is so important to do your due diligence before making any investment.
You Have Control
As the IRA owner, you have total control over where and what you want to invest in when you use a self-directed account. With any self-directed IRA, your IRA custodian or administrator are not responsible for the performance of your investment. The IRA administrator or custodian only does recordkeeping for the account and is not involved in the investment decision in any way. You, as the IRA owner, are responsible for vetting and evaluating all your IRA asset choices. This should be true for every asset you choose, including stocks and bonds.
Before making any investment using a self-directed IRA, you should ask yourself the following:
- Who is touching my money?
- How long have they been in business?
- Are they regulated?
- How does the Custodian Administrator contact me?
If you don’t know this information from the start, ask. You should feel comfortable with the entire investment process. It’s essential to do your research on the company you plan to invest in. Just by doing a Google search on your investment, the manager can give you a lot of insight into your potential investment. You should also be aware of any unsolicited investment offers, especially if it is promoting the use of a self-directed IRA. It’s smart to ask yourself, “If this investment opportunity is so good, why isn’t everyone doing it?” Who is the target market of the investment? Do your homework on every investment!
If an investment offers an outrageous guaranteed return with very low risk, then you might want to ask the question, “Is this investment too good to be true?” Go with your gut instinct, and don’t invest in anything that makes you feel uncomfortable. It’s always a good idea to ask a professional in case you are unsure. Midland Trust is not a fiduciary (Midland is the IRA Custodian), but your CPA and tax advisors are great resources to consult with when making any investment.
Once you choose an investment, it’s essential to monitor your self-directed IRA and the value of your investment. We at Midland Trust offer online access to your self-directed IRA. An online portal easily allows the client to view current and past statements and to keep track of their account. You, as the IRA owner, will need to have contact with the investment sponsor to get an up-to-date value of your assets.
The biggest mistake an investor can make is to not do the due diligence on their investment. We can not stress the importance of learning more about your finances before you get started. Some asset classes are riskier than others, be sure to ask as many questions as you like before you get started. Below are several websites that can help you investigate your investment:
- Google – Google your investment and the manager and don’t be afraid to do a background check
- U.S. Securities and Exchange Commission
- FINRA’s Broker Check – look at the person who is selling you an investment
- AARP (American Association of Retired Persons) – search their discussion board for great information
- FINRA’s Fighting Fraud 101: Smart Tips for Investors – electronic book on fighting fraud
- NASAA (North American Securities Administrators Association)
- FINRA’s Save and Invest – Investor Education Foundation
- Every state has a website for the Secretary of State, check to make sure the LLC or corporation you are investing with is active and properly incorporated.
If you have any questions or would like additional information, please contact Midland Trust at (239) 333-1032 or visit www.midlandtrust.com.