Self-Directed Portfolio Advantages/Disadvantages

There is much debate about whether individuals with a self-directed portfolio can outperform the major indices as well as mutual funds, which are touted by Wall Street as the only way for the average investor to accumulate wealth.  It makes sense doesn’t it?  By keeping alive the pervasive myth that a buy and hold strategy in mutual funds is the best way to go, they ensure that you’ll continue to dump your hard earned cash into their funds while they collect their exorbitant management fees.. all the while soothing your concerns of under performance by repeating the mantra "that over the long haul we will out perform the market."  Sure, there are some very good funds out there, but I believe with some solid technical analysis skills, the right tools, discipline and organization anybody can greatly exceed average returns.  I thought I’d highlight some advantages and disadvantages of a self-directed portfolio.


1.  Greater returns
The average actively managed stock mutual fund returns approximately 2% less per year to its shareholders than the stock market returns in general.

As time goes on, the majority of mutual funds underperform index funds

2.  Potential for reduced fees.
By using ETF’s and trading with a discount broker you can reduce investing costs.  Just remember that the larger your account the smaller your trading costs.  If you’re daytrading a small account you will get killed in commissions!  On the other hand, if you have a large account and making a few trades in stocks and ETF’s, suddenly that 2% management fee you were paying before looks real expensive doesn’t it!  The larger your account, the more it makes sense to invest for yourself.

3.  Nobody cares more about your money than you do.
You take control of your financial situation and your future!   No mutual fund manager will have you in their best interest.

4.  Mobility/Flexibility
Trading for yourself full time can yield large gains in both bear and bull markets allowing you to work anytime from anywhere in the world if you so choose.

5.  It’s Fun!
Researching the next great companies, following breaking news each day and exchanging trading ideas with others all over the world is great fun.


1.  Time
It requires more time to do this on your own but it’s your financial future, so make time.  By using just ETF’s and making a few well researched trades each month, your time is minimal and the payoff can be huge.


Did you know that you can  use a self-directed IRA account to invest in real estate too?


If you’re looking to get a leg up in your self-directed portfolio endeavors, how about giving the Self Investors Gold membership a look?  You’ll receive buy and sell alerts in a Model Portfolio within minutes of every transaction.  After a top tier performance  of 27.6% last year, the Model Portfolio is posting strong gains again this year of over 24% while the S&P is in the red.

One thought on “Self-Directed Portfolio Advantages/Disadvantages”

  1. Did you know that self-directed IRAs are being used by cons to launder the savings of retirees and anyone who has the misfortune to be caught up in their lairs? And how would investors know? They are after all going through legitimate custodial institutions, and usually following the “advise” of a financial advisor. Everyone makes money, except for the investor who loses his shirt.

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