What is the Safest Investment For an IRA?
An Individual Retirement Account (IRA) allows you to sidestep some of the complications that accompany employer-sponsored plans such as 401(k). It gives you greater control over where you invest your retirement savings, matching it up with your financial goals, risk tolerance and investment horizon.
Consider investing in equity index funds with low fees for an IRA account – such as Fidelity’s Total Market Index Fund FSKAX which covers the U.S. stock market at just 0.2% of fees charged.
Bonds offer a secure way to diversify an investment portfolio. Treasury bonds issued by the government tend to be less risky and have lower yields, while corporate and junk bonds offer higher yields but can be more volatile. When selecting bond allocations for their IRA investments, investors should keep retirement date and risk tolerance in mind.
Investors looking for an easy and cost-effective way to diversify their IRA investments may benefit from selecting index mutual funds or exchange traded funds as the foundation of their portfolios. These professionally managed portfolios feature diverse investments which help broaden diversification.
Schwab offers low-fee target-date funds that automatically adjust their portfolio over time to fit with your retirement year, while Betterment, a robo-advisor that charges one flat fee to manage your portfolio, also features tax loss harvesting and automatic rebalancing – free basic service or upgrade for access to human advisors if investing over $100,000.
Equities (commonly referred to as stocks) offer the potential for strong long-term returns, yet also carry greater risk than bonds. Investors in retirement should typically tilt their portfolio toward stocks; how much depends on age, risk preferences, and financial circumstances – one rule of thumb suggests subtracting one from 100 as a guideline for how much should be in stocks in your portfolio.
Equity index funds, which hold stocks from multiple companies, make for ideal core investments in most IRA accounts. They have low expense ratios and support the primary aim of many IRAs: building wealth over time.
Municipal-bond funds provide an ideal alternative to bonds in an IRA account due to their lower interest-rate sensitivity and minimal tax-cost ratios. They tend to play secondary roles rather than core ones within portfolios and should therefore only be included within taxable accounts.
Money market accounts, similar to savings accounts but offering higher APYs and check writing capabilities, can provide your IRA with a safe haven for its funds. Backed by the FDIC and offering low risk returns on investments like Treasury bills and notes maturing within one year as well as TIPS securities issued by governments to adjust for inflation, they offer an ideal way of earning interest without taking on too much risk.
Your investments for an IRA should match up with your goals, time horizon and risk tolerance. Equities offer long-term investors potentially higher returns while bond funds offer reduced risks.
Residential real estate is an increasingly popular investment option, and can serve as an attractive addition to an IRA account if chosen wisely. Real estate may appreciate over time while remaining less volatile than stocks and bonds.
Investors looking for diversification into property can purchase shares of real estate investment trusts (REITs). REITs tend to offer superior returns compared to CDs and bonds; however, they may be more volatile.
Traditional and Roth IRAs allow investors to diversify their portfolio with mutual funds, ETFs, stocks and bonds. If you prefer active trading, we recommend Fidelity due to their excellent customer service, solid platforms for investors and large selection of investments–including thousands of mutual funds available with no transaction fees! It has received top marks on NerdWallet as an online broker or robo-advisor.
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