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Investment Options for Your IRA


When planning for retirement, one of the fundamental decisions you’ll face is how to invest within your individual retirement account (IRA). There are several approaches to selecting investments and managing your account. You could pick individual securities yourself, employ a robo-advisor or work with a financial advisor to construct your portfolio. From there, you can select from different IRA investment options, including individual stocks and bonds, mutual funds and exchange-traded funds, among other assets. 

If you need help choosing investments for your retirement plan, a financial advisor can guide you in making a specific selection for your goals and needs.

How Will You Manage Your Portfolio?

Before investing any of the money in specific assets, you’ll want to decide how to manage your IRA. This decision should be based on your personal goals, risk tolerance and desired level of involvement, as there is no one-size-fits-all solution. It is essential to align the chosen approach with your individual circumstances.

Select Individual Securities Yourself

For those who prefer a hands-on approach, selecting and managing individual securities within their IRA portfolio is the preferred approach. This option gives you complete control over portfolio composition but it requires a comprehensive understanding of financial markets, time commitment, and thorough research and analysis.

This management approach also involves monitoring and rebalancing your portfolio, setting asset allocation targets, reviewing performance against benchmarks and implementing disciplined decision-making processes. While offering potential for greater customization and control, the DIY approach carries a higher level of risk and requires substantial investment of knowledge and resources.

Use a Robo-Advisor

Robo-advisors are digital platforms that use algorithms and computer models to construct and manage investment portfolios based on individual financial goals, risk tolerance and time horizon. These platforms offer convenience and accessibility through user-friendly online interfaces, often with lower fees when compared with traditional human financial advisors. 

However, robo-advisors may not provide the personalized attention and guidance that a human advisor can offer or the level of customization that you’d get managing an IRA yourself. When evaluating robo-advisor platforms, consider factors such as investment methodologies, portfolio construction techniques, fee structures, customization options, security measures, regulatory compliance and customer support services.

Work With a Financial Advisor

For those with complex financial situations or a preference for personalized guidance, working with a human financial advisor can be a valuable option for managing their IRA portfolio. Financial advisors can provide tailored recommendations based on your unique circumstances, while considering factors like risk tolerance, investment goals, tax considerations and overall financial plan. This will be typically more expensive, but financial advisors offer expertise and personalized attention, particularly for those with significant assets or intricate financial situations.

IRA Account Investment Options

There are many ways to manage your IRA and investment options.

IRAs offer a tax-advantaged way to save for retirement, providing flexibility in investment choices to align with personal financial goals and risk tolerance. Selecting the right investment options within an IRA can impact the growth of retirement savings over time. Here are eight common IRA investment options:

1. Mutual Funds

Mutual funds pool money from a large group of investors and purchase diversified portfolios of stocks, bonds or other securities. Their inherent diversification reduces the risk of losing money on any single investment, making them a popular investment vehicle. The tax-advantaged nature of IRAs allows any capital gains or dividends that a mutual fund generates to grow either tax-deferred (traditional IRA) or tax-free (Roth IRA). This setup can enhance the compounding effect of returns over time.

2. Exchange-Traded Funds (ETFs)

Like mutual funds, exchange-traded funds (ETFs) are pooled investment vehicles that own diversified portfolios. However, unlike mutual funds, ETFs are traded on stock exchanges and can be bought and sold throughout the trading day at market prices. This provides greater flexibility and typically lower fees than mutual funds. Many investors choose ETFs for their IRA to take advantage of these lower costs and the ease of trading. Also, many ETFs are considered index funds, which are passively managed funds that aim to match the performance of a chosen benchmark, rather than beat it. 

3. Target Date Funds

Target date funds offer a passive, hands-off approach to managing your IRA portfolio. These funds automatically adjust their asset allocation over time, gradually shifting from a more aggressive, growth-oriented portfolio to a more conservative, income-focused portfolio as you approach your target retirement date. The concept of a “glide path” is significant in aligning the fund’s asset allocation with your risk tolerance and investment objectives. When comparing target date funds, it is important to evaluate factors like asset allocation strategy, underlying holdings, fees and the fund manager’s investment philosophy and track record.

4. Individual Stocks

For investors seeking greater control over their IRA portfolio, investing in individual stocks can be an option. However, this approach carries higher risks, such as concentration risk and the potential for significant losses if a company underperforms. Thorough research and maintaining a well-diversified portfolio are crucial when investing in individual stocks. Investors should analyze factors such as financial statements, industry trends, competitive landscape and the company’s growth prospects when evaluating individual stocks for potential inclusion in an IRA portfolio. Diversification across sectors and market capitalizations is also essential to mitigate risk and ensure a balanced portfolio.

5. Treasuries

Debt securities issued by the United States government, also known as Treasuries, are considered to be among the safest investments available. While Treasuries typically offer lower returns compared to other asset classes, they can help mitigate portfolio risk and provide a stable source of income within an IRA portfolio. This can be particularly valuable for investors who are nearing retirement or with a lower risk tolerance. Treasury securities come in various forms, including Treasury bills (short-term maturities of one year or less), Treasury notes (maturities between 2 and 10 years), and Treasury bonds (maturities of 10 years or longer). 

6. Bonds

Investing in bonds through an IRA can provide a steady stream of income and diversification benefits. Bonds are debt securities issued by corporations, municipalities or governments, representing a loan from the investor to the issuer. However, bonds are subject to interest rate risk and credit risk, and investors should carefully consider the creditworthiness of the issuer and the duration of the bond. When evaluating bonds for an IRA portfolio, investors should review credit ratings assigned by rating agencies (e.g., Moody’s, S&P, Fitch) to assess the issuer’s creditworthiness and default risk. 

7. Money Market Funds

Money market funds are low-risk, short-term investment vehicles that invest in highly liquid and low-risk securities, such as Treasury bills and commercial paper. While money market funds typically offer lower returns when compared with other investment options, they can serve as a temporary holding place for cash within an IRA or as a conservative investment option for those with a low risk tolerance or nearing retirement. 

However, it is important to note that money market funds are not entirely risk-free. They are subject to credit risk, as they invest in securities issued by corporations and financial institutions, and interest rate risk, as their yields can fluctuate with changes in market interest rates. 

8. Alternative Investments 

Alternative investments such as real estate, commodities and precious metals can diversify an IRA beyond traditional stocks and bonds. These assets might provide higher returns and lower correlations with conventional markets, potentially reducing overall portfolio risk. However, you may need to open a self-directed IRA in order to invest in certain alternative assets. 

Other Considerations

A retiree sits on his patio and reviews his IRA balance and holdings.

When it comes to investing for retirement, your risk tolerance (how comfortable you are with potential ups and downs) and your time horizon (how many years until you’ll need the money) play a crucial role in determining the appropriate investment strategy for your IRA account. 

If you’re a young professional with decades until retirement, you might feel more comfortable taking on riskier investments with the potential for higher returns, as you have ample time to recover from any short-term market fluctuations. On the other hand, if you’re nearing retirement age, a more conservative approach focused on preserving your hard-earned savings might be more suitable. The key is to evaluate your personal circumstances and align your IRA investments with your risk tolerance and time horizon.

Keep an Eye on Fees

IRA account holders should also be vigilant about both the fees charged by their IRA custodians and the management fees associated with individual investment funds. High fees can erode investment earnings over time, making it essential to choose cost-effective investment options and platforms that align with your financial goals and retirement strategy.

While fees may seem insignificant at first glance, their compounding effect over time can have a substantial impact on your IRA’s growth. Consider the following example:

Initial InvestmentAnnual FeeAnnual ReturnValue After 30 Years

As you can see, the portfolio with the lower annual fee of 0.5% accumulated over $163,000 more than the portfolio with the higher 1.5% fee, despite earning the same annual return. This stark difference highlights the importance of carefully evaluating and minimizing fees when selecting investment options for your IRA. 

Monitor and Rebalance

As mentioned earlier, it’s important to monitor and rebalance your portfolio periodically – especially if you’re a DIY investor. Over time, changes in the market can disrupt your asset allocation, leaving your portfolio overweighed in certain assets and underweighted in others. This can potentially expose you to more risk than you’re comfortable with. 

Rebalancing involves adjusting your investments to restore your desired asset mix, essentially selling off some of the overperforming assets and reinvesting the proceeds into underperforming ones. While the optimal rebalancing frequency may vary, many financial advisors recommend reviewing and rebalancing your IRA portfolio at least annually or whenever an asset class deviates from its target allocation by more than 5-10%.

Bottom Line

Choosing from the vast array of IRA investment options can feel overwhelming at first. But after selecting a management approach – whether you plan to manage your IRA yourself, use a robo-advisor or hire a human advisor – the path forward will feel much more manageable.

Retirement Planning Tips

  • SmartAsset has tools designed to help you plan for retirement, including a retirement calculator that will estimate how much annual income you’ll need to support your projected spending in retirement. Meanwhile, if you’re considering relocating in retirement, it helps to understand the tax environment of where you’re moving. This tool shows you how tax-friendly different states are toward retirees.
  • A financial advisor can help you plan and save for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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