Let’s be real: we’re not investing in a vacuum. Markets crash. Rates spike. Inflation rears its head. Even your most confident investments can wobble under pressure. So how do you know if your self-directed IRA is ready to handle the next financial shockwave?

Answer: stress-testing.

It sounds technical, but at its core, it just means asking some “what if?” questions before reality does it for you.

The Mindset Shift: From Optimizing to Protecting

When markets are strong, it’s tempting to chase returns. But true portfolio strength is measured during downturns. A good stress test flips your thinking from “How can I grow this faster?” to “What could break, and what would that mean?”

This is especially important for self-directed investors. You’re in charge of your own guardrails.

Where to Start: Three Big “What Ifs”

You don’t need fancy software to stress-test your IRA. Start with pen and paper or a spreadsheet. Look at your current holdings and walk through these scenarios:

1. What if real estate prices drop 20%?

• How would that affect the value of your IRA?
• Can your rental properties still generate a cash flow?
• Would any loans become upside-down?

2. What if interest rates climb by 2% more?

• Are you holding debt-financed property that could become more expensive to carry?
• Would your private lending returns still be competitive?

3. What if your most illiquid asset needs to be sold quickly?

• Could you exit?
• Would you have to sell at a loss?
• Do you have enough liquid assets in the IRA to cover required minimum distributions or emergencies?

Watch Your Concentration Risk

A lot of SDIRA portfolios tilt heavily into one asset class, like real estate or private notes. That’s fine—until that sector takes a hit. Stress-testing helps you catch overexposure before it becomes a problem.

Ask yourself: If this one category took a 30% hit, how would that impact the whole picture?

Also consider correlations. If your real estate, lending, and private equity investments all depend on the same economic factors (like interest rates or housing demand), you’re not as diversified as you think.

Time Horizon Matters

If you’re ten years out from retirement, you can afford to ride out volatility. But if you need distributions soon, stress-testing becomes even more critical. Liquidity matters. So does income stability.

Run a mock income plan: can your IRA generate the cash flow you’ll need in a recession?

Optional Tools That Help

You can use spreadsheets, basic financial planning software, or even input your assumptions into free online tools. They don’t have to be perfect—they need to show what your portfolio looks like under stress.

If you want a more advanced model, some investors use tools like Portfolio Visualizer or consult with a fiduciary advisor who understands self-directed assets.

Final Thought: Build in Resilience Now

Stress-testing isn’t about predicting the future. It’s about preparing for what might happen so your IRA doesn’t get caught off guard.

Think of it like earthquake-proofing a house. You hope you never need it, but if the ground shakes, you’ll be glad you did the work in advance.

This type of discipline is what distinguishes hobbyist investors from those who accumulate real wealth over time. The beauty of self-management of your IRA or Solo 401k is that you can pivot in an instant, rather than going through custodial red tape in selling investments or changing terms

For more information, reach out to [email protected] or set a time here for a call to look at your options for control.