Buyers Beware: Doing Due Diligence on Your Investment

There has been a lot of talk about fraudulent activity being involved when investing using a self-directed retirement account. Unfortunately, we live in a world that is full of scams and schemes and people attempting identity theft. According to a report in 2011 by the Investment Company Institute, U.S., investors held about $4.7 trillion within their IRAs. This large figure makes IRAs an attractive target for fraud. This is why it is so important to do your due diligence before making any investment.

Being that a self-directed IRA is truly self-directed, your IRA administrator is not responsible for performing background checks on your investments. You have total control over where and what you want to invest in. The IRA administrator or custodian only does recordkeeping for the account and is not involved in the investment decision in any way.

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?

If you don’t know this information from the start you are already taking a huge risk. It’s important to do your research on the company you plan on investing with. Just googling your investment and the manager can give you a lot of insight about your potential investment. You should also be aware of any unsolicited investment offers, especially if they are promoting the use of a self-directed IRA. Do your homework on every investment!

If an investment offers an outrageous guaranteed return with very low risk then you might want to question yourself, “Is this investment too good to be true?” Go with your gut instinct and don’t invest in anything you feel uncomfortable with. It’s always a good idea to ask a professional in cases you are unsure. Midland IRA is not a fiduciary, but your CPA or tax advisor are great resources to consult with when making any investment.

The biggest mistake an investor can make is to not do the due diligence on their investment. 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
  • SEC.gov – SEC Investor Alert on self-directed IRAs and the risk of fraud
  • Investor.gov – SEC’s Office of Investor Education and Advocacy
  • AARP.org – American Association of Retired Persons – search their discussion board for great information
  • SEC – Electronic book on fighting fraud
  • NASAA.org – The North American Securities Administrators Association
  • SaveAndInvest.org – FINRA Investor Education Foundation