Here are the key decision points:
- Does your 401k plan at work offer attractive investment options? If not, you might do better investing the money yourself.
- Do you prefer to be able to see all of your savings in one report?
- Would you feel more comfortable having some of your money outside of the work plan for privacy or security reasons?
- Do you think you will need access to this money before retirement? If so, it might be easier (depending upon the rules of your plan) to take a loan against the balance in your work plan.
If you decide that you want a self-directed IRA, first select a broker/trustee to manage your plan. This can be your bank, or a full-service firm like Fidelity or T. Rowe Price, or a discount brokerage firm like e-Trade. Then have that firm request the transfer from your 401k plan or assist you with it. You do not want to handle the money yourself as it might be deemed a taxable distribution, even if it is re-invested. It is cleaner to move it from trustee to trustee. The trustee will guide you through all of the proper steps to set up the IRA, but obviously the full-service guys are more helpful and thorough.
If you choose to have an IRA with a stock brokerage firm, that still does not mean that you must invest it in mutual funds or stocks. If you don't feel comfortable with that level of risk, you can have your IRA purchase U.S Treasury securites or even bank CD's (Certificates of Deposit, not music). You can also have a combination of these investment options. Most banks can also offer a stock trading account, but you will pay higher fees than you would with a brokerage house.
My advice is to choose an investment strategy and risk portfolio that you feel comfortable with, and then stay the course. Avoid the urge to "time the market" or day-trade. Most of your profits will be burned in bad guesses and brokerage fees. You are better off reviewing your selections on a quarterly basis to be sure you are still on track to meet your goals.
