How To Choose Between The Various IRA Investment Options

18 December 2017
 Categories: , Blog


Much of the published information about individual retirement accounts revolves around who is eligible to fund an account. A lesser amount of advice is provided about the IRA investment options that are available. As a result, individuals eligible to fund an IRA must sort through the many investment possibilities before deciding which option is most suitable.

If you are eligible to fund an IRA, you can invest up to $5,500 per year on a tax-deferred basis. If you are age 50 or older, the annual contribution limit is $6,500. A wide array of IRA investment options are available because the tax regulations do not specify which investments are acceptable. Instead, the tax code prohibits IRA investments in life insurance and most collectibles.

The most appropriate IRA investment choice is largely dependent on your age and your tolerance for risk. Another factor affecting your IRA selection is the degree to which you wish to be involved in the details of investing. Some individuals like to make their own stock selections, while other people prefer to leave most investment decisions up to fund managers.

Stock mutual funds

At the close of the second quarter of 2017, roughly 48 percent of existing IRA investments were in mutual funds. There is usually a natural diversification built in to most mutual funds, resulting in a balanced investment portfolio. Even so, some IRA investors prefer to focus on a narrower segment of the economy.

Some stock mutual funds invest mostly in small companies with future growth potential. There are even mutual funds that invest in a specific segment of the economy, such as energy or health care. Instead of equity in corporate stocks, some funds invest in various types of debt instruments.

Bond mutual funds

Government bonds are generally considered to be relatively safe investments. Corporations also issue bonds to finance their operations. IRA owners who are close to retirement age might prefer to invest more heavily in bonds than in speculative corporate stocks. Mutual funds referred to as target-date funds gradually alter their holdings in order to minimize investment risk as account owners approach retirement.

Gold bullion

The prohibition on investing IRA funds in collectibles does not apply to certain types of highly refined gold bullion. Some investors include a small amount of gold in their investment mix simply as a hedge against inflation.

The eligibility rules for a traditional IRA are different than those for a Roth IRA. Contact a financial advisor at companies like Trajan Wealth for further information on choosing the most appropriate IRA investment.