How to Make Investments in Your Roth IRA

Investing in a Roth IRA account is similar to other retirement accounts in that you can choose certain securities to invest in once you’ve created your account. Where the Roth IRA differs is its tax-free growth potential, which can significantly enhance your retirement savings over time. The key to maximizing this benefit is making investment choices that align with your financial goals and risk tolerance. Diversification is often recommended to mitigate risk and optimize returns, as is regularly reviewing and adjusting your Roth IRA investment strategy to reflect changes in the market and in your circumstances.

Considering how to invest funds in your Roth IRA? A financial advisor can help you identify and select investments that fit your situation.

Roth IRA Investing Basics

A Roth IRA is a tax-advantaged retirement savings account that is funded with after-tax contributions. Earnings from investments made with funds in the account grow tax-free. After you reach age 59 ½, you can withdraw money from the account without owing taxes, as long as it’s been at least five years since you opened it.

You open a Roth IRA at a sponsor, typically a brokerage or bank. This institution governs the investment options available for the account. In many Roth IRAs, investment options are limited, consisting of a small selection of money market accounts, mutual funds, exchange-traded funds, index funds and target date funds. Occasionally, accounts may allow account holders to select individual stocks and bonds. With some plans, you can choose to work with a robo-advisor or human investment manager who will help you make investment selections.

A subset of Roth IRAs, self-directed Roth IRAs, permit account holders to select investments from a much wider range of options. Depending on the specifics of the self-directed account, these options may include real estate, business partnerships, gold and other precious metals and even cryptocurrency and derivatives, such as options. While self-directed accounts offer greater freedom, they also carry added responsibility and risk. A sponsor offering a fully self-directed account must inform you about the risk, return and other characteristics of available investment options. They may even require you to release them from any fiduciary duties to match you with only suitable investments.

Some investments, as well as certain types of financial transactions, are not permitted within Roth IRAs. Banned investments include collectibles, such as antiques, art, stamps and jewelry. (Note you can invest in some coins made of gold and other precious metals but not as collectibles). Prohibited transactions include lending money to disqualified people. This group includes you, the account holder, as well as your spouse, children and grandchildren.

Choosing Your Investments

A couple choosing investments for their Roth IRA.

When you set up your Roth IRA account, you’ll select the investments you’d like to buy with your contributions. Typically, you’ll specify this as a percentage of your contributions. For instance, you may opt to put 60% of your contributions into one or more bond index funds and the remaining 40% into equity index funds, with that 40% divided equally between small growth stocks and dividend-paying large companies. Future contributions would then be allocated among these investments according to the percentages you pick.

Later on, you could choose to change your investment choices. For example, you may rebalance your portfolio on an annual or other basis. At this cadence, you may sell some investments and buy others in order to maintain your desired asset allocation. You may also change your investments as your objectives change. For example, it’s common to shift toward a more conservative risk profile as retirement nears.

Many plans allow you to update your investment choices online. Typically, Roth IRA account holders can simply log onto their company’s website and select the “Investments” tab. This will pull up a screen where you can then buy or sell investments, or reallocate your existing portfolio.

Tips for Setting Up Your Roth IRA

Roth IRAs offer tax-free growth and tax-free withdrawals in retirement. This makes them an attractive option for many investors. Here are some essential tips to help you set one up:

Choose the right financial institution. Selecting the right provider for your Roth IRA is crucial. Consider factors such as fees, investment options and customer service. Banks, credit unions and brokerage firms can all offer Roth IRAs. Compare their offerings to find the best fit for your investment strategy and financial goals.
Decide on your investment strategy. Determine how you want to allocate your funds within the Roth IRA. Investment options can include stocks, bonds, mutual funds and ETFs. Your choices should align with your risk tolerance and retirement timeline, ensuring a balanced portfolio that can grow over time.
Set up automatic contributions. Automating your contributions can help you stay consistent with your savings plan. Most financial institutions allow you to set up automatic transfers from your bank account to your Roth IRA. This approach ensures you regularly contribute, maximizing your retirement savings potential.
Stay informed about contribution limits. Keep track of annual contribution limits to avoid penalties. For 2026, the maximum Roth IRA contribution is $7,500 (or $8,600 if you’re 50 or older). Staying informed about these limits helps you plan your contributions effectively and avoid excess contributions.

How to Manage Risk in a Roth IRA

Managing risk in a Roth IRA means finding the right balance between growth and preservation. Since Roth IRAs allow your money to grow tax-free, reducing losses over time can have a lasting impact on your savings. Your investment mix, or asset allocation, should match your age, time left until retirement and comfort with market changes. Investors with more years left to invest often hold a larger share of stocks for growth. Meanwhile, those nearing retirement may favor bonds or cash equivalents to limit volatility.

Rebalancing your portfolio from time to time helps keep your investments in line with your original plan. Market shifts can change the value of certain holdings, and adjusting your allocation can restore balance and control risk.

Diversifying across asset types, such as stocks, bonds and funds, can help protect your account if one part of the market performs poorly. Broad-based mutual funds and ETFs are common tools for diversification.

And remember, managing risk is an ongoing part of retirement planning, as opposed to just a one-time thing. Reviewing your Roth IRA each year, or after major life changes, can help confirm your investments still fit your goals. Because every situation is different, it may be useful to discuss your investment and tax strategy with a financial advisor or tax professional.

How Your Time Horizon Can Influence Your Roth IRA Investments

One advantage of a Roth IRA is that many investors hold the account for decades before taking withdrawals. That longer investment horizon can influence the types of investments you choose. Assets with greater short-term volatility may have more time to recover from market declines.

For someone who expects to retire many years from now, a portfolio with a larger allocation to stocks may offer greater long-term growth potential. That allocation does, however, also come with higher risk. Investors who are closer to retirement often shift part of their portfolio toward bonds or other investments that have historically experienced smaller price swings.

Your investment strategy does not have to remain the same throughout your working years either. As your retirement date approaches, changes in your income, financial goals or risk tolerance may lead you to adjust your asset allocation. Many investors review their portfolio periodically to determine whether those changes are appropriate.

Some investors prefer to make those adjustments themselves. Others use target-date funds that automatically become more conservative as the selected retirement year approaches. The latter approach can simplify portfolio management, although investors should still review their holdings periodically themselves to confirm they continue to fit their objectives.

Regardless of your age, your Roth IRA investments should reflect your overall retirement plan rather than market headlines or short-term price movements. Building an allocation that matches your time horizon and revisiting it periodically can help keep your investment strategy aligned with your long-term goals.

Bottom Line

A client meeting with an advisor to review Roth IRA investments.

Investing in your Roth IRA can be a strategic way to secure your financial future. This type of retirement account offers both tax-free growth and withdrawals in retirement. To make the most of it, though, it’s essential to understand the types of investments that align with your financial goals and risk tolerance. Diversifying your portfolio with a mix of stocks, bonds and mutual funds can help balance risk and reward, ensuring your investments grow steadily over time. Regularly reviewing and adjusting your investment strategy can help you stay on track to meet your retirement goals.

Tips for Retirement Planning

Whether you have a self-directed Roth IRA or a more conventional one with limited investment options, a financial advisor can help you determine which investment choices fit your needs and risk tolerances. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. Then, you can have a free introductory call with your advisor matches to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s retirement calculator provides an instant estimate of how much you may need to save to retire comfortably. All you have to input is a few details, including your birth year, income, location and planned retirement age.