What is the Safest Investment for an IRA?
Before choosing what assets to place into an IRA, it’s important to take a holistic view of your portfolio. Investments with significant capital gains distributions might fare better outside an IRA.
If you need assistance planning and executing an investment strategy, why not work with a financial advisor? SmartAsset’s free tool matches you up with pre-screened advisors in your area who can answer your questions about investments.
Stocks
Stocks (equities) offer long-term growth potential. Equities represent ownership in companies and can appreciate as they expand, though they could decrease if markets decline or companies go bankrupt.
Investors can purchase stocks directly, though this requires additional research and fees, or through funds. Funds provide diversification with less risk than individual stocks. Investors can select from thousands of no-transaction fee mutual funds such as Vanguard’s low-cost index funds.
Real estate and small business loans offer another low-risk investment option with secure physical assets, often yielding higher returns than stocks or bonds. IRA investors can purchase these directly through an online broker or utilize a robo-advisor with low management fees such as Robinhood. E*TRADE also provides access to many retirement accounts as well as resources on saving and investing.
Bonds
Bonds provide you with a fixed return at a specific date, along with interest payments (usually twice annually). They’re generally less risky than stocks but don’t provide as much growth potential; you can buy individual bonds directly or invest through bond mutual funds.
Treasuries, which are backed by the federal government, are often seen as one of the safest investments. You will still have to pay federal income tax on the interest earned, though typically with much lower yields.
Certificates of deposit (CDs) are a safe, low-risk investment option for an IRA. But inflation could erode some of their purchasing power; to protect yourself from this possibility it’s essential that your portfolio contains both risky and safer investments.
Money Markets
The money market provides an efficient means for savers who have extra funds to connect with governments, companies, and banks that need short-term loans to meet near-term obligations – typically overnight loans but sometimes for days or weeks as well. Investors seeking returns can invest in money market funds, commercial paper, Treasury bills, or bank CDs in order to generate interest income.
Money market accounts (MMAs) may provide competitive yields during times of low rates. However, you should remember that many MMAs do not permit check writing capabilities as is available with savings accounts and some have steep minimum deposit requirements. Although an FDIC-insured money market account might seem safe at first glance, inflation will erode your purchasing power over time and higher-risk investments may provide a better return – in such a situation it would be wise to consult a financial planner to ensure your IRA investment strategy fits with your specific needs and goals.
Real Estate
Real estate investment may be an attractive proposition for IRA investors with time and expertise; however, they must carefully consider its risks; for instance property values could fluctuate and maintenance costs often prove significant.
Trigub recommends selecting a self-directed custodian who specializes in alternative assets, like Madison Trust. These companies differ from traditional brokerage firms like Schwab, Fidelity or E-Trade in that they are specifically designed to simplify investing market products with systems capable of handling IRA investments.
Treasury bills, notes and bonds, better known as T-bills, are an ideal investment for an IRA account. Issued by the government and guaranteed by its full faith and credit, T-bills offer a fixed rate of return and are considered one of the lowest-risk investments available. Municipal bonds provide tax-deferred income streams for retirees issued by local and state governments that provides them with tax-free income streams for retirement income streams.
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