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Choosing Investments For Your IRA

Don’t let an overwhelming array of choices stop you from saving for retirement. There are simple choices out there such as Betterment or Vanguard’s Total Stock Market Fund. Still don’t feel confident, you can always call for help from your brokerage firm’s customer service.

Choosing Investments for Your IRA 1Last week, a friend made a confession. “So this is terrible,” she said. “But I just realized that when I rolled over my old 401(k) over a year ago to a Fidelity IRA, I never invested it. It’s been sitting there as cash all this time!”

At least she caught her mistake, but the timing was unfortunate; her savings missed out on the strongest stock market year in quite some time.

You need a Roth IRA” is common (and good) financial advice. When you begin saving for retirement at an early age, time is your ally. And with a Roth IRA, your money can compound tax-free for decades.

But in order for your money to grow, you have to invest it. Opening an IRA account is just the first step. You can open IRA accounts just about anywhere: stock brokers, credit unions, mutual fund companies, and even at alternative investment houses like LendingClub. (LendingClub is a peer-to-peer lending network enabling you to loan your money to consumers seeking alternative to bank-issued credit.)

But once you put money into an IRA, you must decide what to do with it.

An IRA is like a bucket that you fill with assets. Into the bucket you can place whatever you want. That could be cash, stocks, bonds, mutual funds, or even more exotic investments like gold or peer-to-peer notes. Because you place these investments in the IRA bucket, they reap the tax benefits of whichever account type you select (traditional or Roth).

With years ahead of you, young investors can and should be aggressive. This means investing mostly in stocks. If you open an IRA at a local bank and put your money into a 1 percent APY money market account, you will only lose money to inflation. And if you open a brokerage account, fund it, but fail to buy any investments, your cash may be sitting there not even earning 1 percent.

Not good!

The problem is, there are tens of thousands of investment options, and most of us aren’t investing gurus. We fear choosing the wrong investments or simply become overwhelmed by all the choices. Here’s what to remember:

It’s possible to keep things really simple

For years, it seemed like the investing world only got more and more complex with thousands of new and exotic investment choices popping up. This benefited banks and the people who sold these investments; average investors not so much.

Fortunately, today there is an overdue trend to create investments that make it easy for regular people to invest confidently without trying to be an expert.

At the most simple is Betterment, a brokerage that indexes the entire stock and bond market and gives investors just one choice: how much to allocate to stocks and how much to bonds.

Also along these lines are index mutual funds and exchange-traded-funds (ETFs). These investments let you buy an entire market index (for example, the S&P 500), in one transaction. An example of an uber simple portfolio would be to invest in the Vanguard Total Stock Market Index Fund and the Vanguard Total Bond Market Index Fund or ETF equivalent.

When in doubt, choose a popular mutual fund

Investing involves risk, and you never know for sure that putting your money into a mutual fund will be better than letting it sit as cash. But with decades to invest, diversified mutual funds have a good chance of providing healthy returns while minimizing risk.

If you’re inclined, take some time to learn about mutual funds and how to choose funds with low expenses.

If not, stick with major fund companies like Fidelity, Vanguard or T. Rowe Price. Then, look for funds that are widely diversified. Good bets include Target Date funds that you select based on your desired retirement date.

Related: Index Funds vs Target Date Funds: How To Decide Which Is Right For You

Pick up the phone and ask for help

Take advantage of your brokerage’s customer service. Some brokers have financial advisors on staff that can help you choose investments. Non-licensed customer service reps may not be able to recommend investments but may still point you in the right direction.

In most cases these advisors will steer you towards funds that company owns or has a financial incentive to recommend. To avoid overpaying, ask for “no-load mutual funds” and for the expense ratio of any funds they recommend (under 1 percent is generally good).

Be wary of a broker pushing you towards individual stocks, annuities, or life insurance as an investment product.

But above all else, take action

Failing to invest can be just as bad for your money as choosing the wrong investment. Although you want to avoid risky plays like betting big on individual stocks or getting into overpriced investments you don’t understand, try not to let fear keep your money on the sidelines.

Over the course of a decade or more, I would rather own a mediocre mutual fund than nothing at all. You have plenty of time to become a more knowledgeable investor and adjust your portfolio. But there’s no time like now to become an investor in the first place.

Need 1-on-1 advice? Learn how to find pre-screened financial advisor in your area here.

Published or updated on May 6, 2013

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. […] IRA Investment Options: How to Choose Investments for Your IRA by David Weliver. […]

  2. Allan Browder says:

    I understand most mutual funds require $2500 minimum to invest. Do you recommend any that are under that limit?

    • Here is a good starting fund with only $1000 minimum requirement.

      Vanguard Star Fund (VGSTX)

      Expenses: .34%
      Turnover: 12%
      Minimum Investment: $1,000

    • David E. Weliver says:

      Some fund companies will waive the minimums if you open an account directly and enroll in automatic monthly investments for at least $50 or $100 a month.

      ETFs are another option — the minimum is simply the cost of a single share. Trade commissions will be your enemy with ETFs, but you can get around them by looking for brokerages that offer some ETFs with no commission (select iShares ETFs trade free at Fidelity, for example).

      • Ryan says:


        I’m considering opening a Roth IRA account alongside my normal 401k company retirement account because I’ll hit the limit with it this year. Are you aware of any vanguard funds through bettermint where I can do the automatic monthly investments ($50 or $100) with no initial minimum investment?

        • David E. Weliver says:

          Hi Ryan, Betterment doesn’t offer other company’s mutual funds. With them, you just choose a % of stocks and a % of bond sand they invest through their own proprietary index funds. They would allow you to start with a modeset monthly automatic investment.

          If you wanted a Vanguard fund you’d be best going directly through Vanguard, although you may still be subject to some kind of minimum opening deposit there.

          • Ryan says:

            Hmm, I’ll certainly have to read some more Betterment articles you’ve written in the past then to get up to speed.

            Thanks for quick reply. Love the site!

  3. Steve says:

    I just decided to go with a life cycle fund because I did not want to attempt to allocate my assets on my own.

  4. Travis says:

    This is useful information, and making those IRA choices with respect to your entire financial and retirement picture can be challenging. I’d like to see a post discussing how to make these types of choices across your entire retirement picture.

    • David E. Weliver says:

      Thanks for the feedback, Travis. I agree that will make a good post. Roth IRAs, for example, are ideal for placing higher-growth (read: higher risk) investments because you’ll never be taxed on the returns.

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