Retirement Planning: Invest Your IRA

When comparing an IRA to 401(k) or other employer-sponsored retirement plans, an IRA provides you with a more significant selection of investment options available to you within the account. Most accounts allow you to purchase individual stocks. You can trade options, but you’ll also likely sort through a haystack to find that needle, the lowest-choice cost. Or instead, you could opt for a computer-powered investment manager to do the work for you.

For retirement investment options in Jefferson, NC, the breadth of choice an IRA gives you makes an attractive possibility for your retirement savings. Whether it’s a Roth or traditional version, both will help when you’ve maxed out your 401(k)’s matching dollars. Sometimes, however, too many choices become problematic and confusing for the investor. There are some critical steps first to follow to make an informed decision.

Understanding Asset Allocation and Risk Tolerance

Asset allocation is how you divide your money among various retirement investment investments, whether it’s stocks, bonds, or cash. It could even be large and small-cap stocks, corporate and municipal bonds, etc. For example, you could invest $10,000 in an IRA with $6,000 of it in stock funds and $4,000 in bond funds, defining your asset allocation as 60/40. While you may take the most significant risk with these equities, you’ll get the most significant return over time. Bonds, alternatively, are safer as a form of fixed income.

In determining your asset allocation, you’ll need to consider your tolerance for risk. For how long will you invest your money? You’ll want to risk enough to make a profit but not enough to make you bail or lose everything. A good trick to take as a starting point is to subtract your age from 100 with the resulting number as your portfolio percentage going toward stocks. The idea behind this equation is that it’s better to take more risk when you’re younger for investment growth, tapering off towards retirement.

Mutual Funds and Professional Help

At the base of your portfolio, use mutual funds. It’s easier to diversify with better long-term results using mutual funds than filling your IRA with individual stocks and bonds. For example, buy a basket of investments from index funds and ETFs, allocating more equity toward bigger asset classes like a large-cap fund and less to smaller classes like emerging markets. You’ll often do well by utilizing a fund screener that many online brokers offer.

You can also simply leave this all to the professionals. For low-cost portfolio management, you can use robo-advisors or target-date funds. The first requires an open IRA account with a company who would build and manage an ETF portfolio on your behalf based on personal factors for a fee of roughly 0.25%. The latter refers to a mutual fund you’ll design to be useful to you when you retire at a date you select, putting the end-year date in its title. These are popular funds in 401(k)s, providing you with a broader selection of low-cost retirement investing options. And you can put all your IRA money into a single fund.

In the end, you’ll want to take steps to minimize your investment fees. Otherwise, your expenses can begin to outweigh your portfolio returns. To ensure your IRA’s competitive commissions and abundant, low-cost retirement investment options in Jefferson, NC, consult with a trusted wealth management team today.