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IRA Investments

January 28, 2012

IRA Investments

The first thing you have to know when looking for a good IRA investment plan is that there is no “best one”. There are only the right plans for the right investors. The key to finding an IRA that will be the best plan for you is to take an objective look – perhaps with the aid of a financial professional – at your current financial situation, your short-term goals, and your long-term goals.

Once you’ve determined what your financial needs and abilities are, you can start investigating which IRA will work best to ensure you reach your financial goals. If you’re a fairly young investor and won’t be retiring for thirty to forty years, you can – and should – take a little risk in your IRA, which can lead to long-term payoffs. If you’re older, or closer to retirement, and looking for more safety and security in your IRA investment, let’s look over three options that might best suit your needs.

Mutual Funds

Mutual funds are one of the most popular ways to diversify and IRA safely. In a mutual fund, your investment money is pooled with that of other people in the fund, which allows you to buy in to bigger shares of stocks. Mutual funds vary in the degree to which they are riskily or conservatively invested, so do your research to ensure you are comfortable with the level of security in your investment. Mutual funds, because of their potential for high returns, also do expose you to some risk of loss – it all depends on where they are invested. As such, they are a good option for people who want to invest just part of their IRA; you can maintain some security by only investing part of your money in the possibility for a high return.

Annuities

Annuities are a slightly more secure option for risk-averse investors than mutual funds. Fixed-rate annuities lock in investments at a fixed rate which holds over time as you contribute more and more to your IRA. Investors comfortable with a little risk can opt for a variable rate annuity, which may be invested in mutual funds and has the potential for significant change over the course of your investment. An annuity is a little different, because it is issued by an insurance company and not a bank. The benefit of annuities is that once you retire, you can count on a steady monthly income from your annuity as your contributions over time are distributed back to you.

Certificates of Deposit

Certificates of deposit (CDs) are among the safest ways to invest your money. There is almost no risk involved with putting money into a CD – you are almost always guaranteed to come out with more than you put in. However, because of the low amount of risk, the amount of potential gain is also lower than other investments. Especially investors who are very near to retirement and whose primary goal is to have all the money still there in a year or two, are great candidates for CDs. CDs are a good option for any investor who is risk-averse, though. Interest rates on CDs are higher than on money that just sits in an IRA, money market, or savings account, so it is worth investing in even when an individual doesn’t want to take on risk.

For risk-averse long-term investors, there are a number of financial products on the market. The best option any investor can make is to look over their own plans with a business professional and see which investment or – more likely – which combination of investments makes you feel both comfortable with the security of your money now and preparedness for retirement in the future.

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