When investing in an IRA, your goal should be to achieve steady but modest growth without excessive risk. Therefore, savings and money market accounts do not make good IRA investments.
Consider various options that can bring greater returns and potential growth over time, such as:
1. High-Yield Savings Accounts
High-yield savings accounts are an ideal choice for an IRA because they offer higher interest rates than traditional accounts and are Federal Deposit Insurance Corporation-insured to protect your money in case the bank goes bankrupt.
Savings accounts can be found online banks and credit unions, where opening an account may require providing your social security number, contact details and one or more forms of government identification. Some savings accounts also require minimum initial deposits and minimum balance thresholds before withdrawing funds – making these ideal accounts for short-term goals as your funds won’t be locked away like with certificates of deposit (CD). You have full control of when and if to access them.
2. IRA CDs
IRA CDs provide financial security and predictability by offering a fixed rate of return over a specific term. You’ll be earning this return at banks, credit unions and some major brokerage houses; FDIC coverage up to coverage limits allows these investments to provide safe fixed-term investing with guaranteed gains; however early withdrawal penalties could eat away at your gains should you withdraw funds early from an IRA CD investment account.
Long-term investors who can accept risk often experience greater returns with stocks than CDs over the long term. Compare rates and terms before selecting an IRA CD that best meets their needs.
3. Value Stock Funds
One of the best investments for an IRA is a low-cost value stock fund that tracks a broad market index like FSKAX. This fund invests in stocks which historically trade at discounts to their actual values – making it ideal for long-term buy-and-hold investing since there won’t be any capital gains taxes to worry about when dividends come rolling in.
These funds typically offer lower volatility than growth stocks, which typically trade at high price-to-sales or price-to-profit ratios as investors expect them to rapidly expand in value. They may also provide dividends you can reinvest to enhance returns further; you’ll likely find these types of funds offered through discount brokers, robo-advisors and full-service brokerage firms; similarly, you could consider using broad diversified target retirement funds that provide professionally managed portfolios which gradually become more conservative over time.
4. Short-Term Bond Funds
Short-term bond funds offer an ideal alternative to savings accounts or CDs, since their shorter durations reduce credit risk by decreasing the window for default and also tend to provide greater returns than long-term bonds.
Dividend stock funds are an increasingly popular investment choice for IRAs. Many high-quality companies generate significant cash and distribute it back to shareholders in the form of attractive dividend payouts that grow steadily every year over decades.
If you lack the time or knowledge necessary to select and manage an individual stock portfolio on your own, an asset allocation fund could be a better alternative. These professionally managed funds make investing simpler by choosing, monitoring, and maintaining an investment mix over time – SmartAsset’s free advisor matching tool can connect you with reliable advisors that can assist in reaching your retirement goals.
5. Mutual Funds
Mutual funds provide smaller investors access to professionally managed portfolios with diversified investment options. Regulated by the Securities and Exchange Commission (SEC), mutual funds provide transparent daily pricing as well as disclosure requirements that meet SEC guidelines.
Investors must understand that even the safest investments pose some degree of risk, and invest for the long term. A mutual fund cost calculator can help investors see how fees eat away at returns.
Money market funds are a popular retirement plan and IRA option. These invest in short-term debt securities issued by government, companies or U.S. savings bonds; typically offering higher interest rates than savings accounts or certificates of deposit with check writing privileges and debit card privileges as well as check writing privileges and check writing privileges – however they tend to provide stable but limited growth potential returns.