IRA Investment Options Are Greater Than You Might Think

For the past decade or two, with the growth of IRA retirement accounts and employer-sponsored 401(K) accounts, more and more people are saving for retirement using these vehicles.  It’s widely assumed that Social Security will not provide enough money to live in a style to which many people have grown accustomed, and a way to save tax-free for the future is to open a retirement account.  Subject to IRA tax rules, you can invest pre-tax dollars, or in the case of a Roth IRA, after tax dollars, and have the funds grow until you are eligible to withdraw in retirement. 

Lately however as the stock market has been more volatile, many individual investors are foregoing their IRA contributions because they haven’t learned how to invest for long term growth in any but a bull market.  Many investors think that putting their retirement money in mutual funds is the only option they have to invest, and some individuals with retirement accounts aren’t even sure of the difference between the terms “IRA” and “mutual fund”. Hopefully we can clear up some of the confusion, and offer some ideas for finding good stocks to buy to keep your portfolio growing whether the market goes up or down.

Depending on the type of IRA you have, you may or may not have a good selection of investment choices.  This is also true of 401(K) account plans at most employers.  For example, many people open IRA accounts or retirement accounts with their bank, or an online bank, that restrict the choices available.  This means that there are likely several mutual funds, or particular mutual fund companies, that you can invest in, but you’re prevented from investing in ETFs, individual stocks, currencies, certain types of bonds, and so on.  These banks or employers do not want investors to come back complaining that they lost money in a particular stock, but as we’ve all seen, the potential for losses exists in all investment areas. 

As a result, poor information about investments, as well as the lack of education on the part of investors, are big reasons that people believe they don’t have to know anything about the markets, except to put their money into a so-called “good growth stock usual fund” and leave it there forever until they’re rich at retirement.  That scenario is now officially a pipe dream, and the best advice you can get is to move your money into a self directed brokerage account that gives you real choices and information.  You’ll need to take some time to learn to invest, and take that information into your planning process.  This is the only way you will be able to build a portfolio that can weather the coming economic turbulence.

When you switch to a self-directed IRA account, whether it’s a rollover 401k, or a new traditional IRA, you effectively open a brokerage account which you alone control. You are still subject to the withdrawal restrictions and penalties that apply to retirement accounts, but you can now invest in any investment vehicle which your broker offers.  This could include individual stocks, currencies, government and corporate bonds, options, mutual funds, ETFs, or any type of similar investment.  With this type of account, the choices for investment are much broader, and allow the investor to make decisions based on their personal financial plan, their own risk tolerance, and other goals that may or may not be fulfilled through the limited choices offered by employer-based plans or certain bank plans.

An important thing to remember is that with a self directed account, you can still invest in conservative investments like bonds and CDs or money market funds, or find good stocks to buy that match your investmnet goals, but you also have the ability to buy and sell holdings as you choose, or select new vehicles that fit your financial goals better. “Self directed” does not equate to “risky”.  It merely means you are now in control of your money and your financial future, which is the best way to make sure your money is working in ways that match your unique defined needs.