Individual Retirement Accounts (IRAs) have long been used by savers looking forward to retirement. Given all of the available investment choices, finding one with which you feel most confident can be daunting; but, when safety is your main consideration, certain investments tend to be safer than others and this article covers them further.
Bonds and U.S. Treasury bonds have long been considered safe investments due to being guaranteed by the full faith and credit of the U.S. government.
U.S. Treasury Bonds: These have maturities ranging from several months to 30 years and provide interest payments biannually along with returning the principal when they mature.
Municipal bonds: Offered by state and local governments, municipal bonds tend to be tax-exempt investments suitable for investors in higher tax brackets.
Corporate Bonds: Issued by companies, these debt instruments typically carry higher risk but offer greater yields.
Bond funds: Bond-focused mutual funds provide diversification that helps manage risk by spreading investments across many bonds.
CDs and Money Market Funds may offer protection to their holders against potential financial catastrophe.
Certificate of Deposits (CDs): Certificates are offered by banks as fixed term investments that provide higher interest than savings accounts and have fixed terms (such as six months, one year or five years). FDIC insured CDs offer added safety as potential IRA investments.
Money Market Funds: Money market funds are mutual funds that invest in short-term debt instruments like Treasury bills. While providing liquidity and safety, their returns may be low.
Investors looking for higher potential returns should consider dividend-paying stocks as an avenue. Established companies with an established track record in paying dividends could provide both income and the possibility for capital appreciation; blue chip firms in utilities or consumer goods sectors tend to offer greater stability than others.
Index Funds and Exchange Traded Funds, also referred to as ETFs (Exchange Traded Funds), follow specific market indices like the S&P 500 for example. As they track this index they offer diversification across many stocks or bonds reducing any individual investments from being too risky and thus protecting your portfolio’s overall performance.
Real Estate Investment Trusts (REITs) provide investors with access to commercial properties as investments.
REITs offer individuals a secure way to invest in portfolios of real estate assets. While real estate markets may fluctuate wildly from year-to-year, REITs that specialize in long-term income producing properties (like apartment buildings or commercial spaces ) typically yield steady returns over time.
Though more complex than other options, annuities offer investors a steady source of fixed income. An annuity contract involves paying up front in exchange for periodic payments later. Investors considering an annuity should take note of all applicable fees and surrender charges when considering this investment option.
Safety when investing in an IRA portfolio can vary considerably, from conservative investments like those discussed above to riskier ones like those brought up above – no investment can ever be entirely risk-free as market fluctuations, interest rate changes and economic recession can impact even seemingly secure ones. Therefore it’s critical that your IRA portfolio be diverse while consulting a financial advisor regularly so your choices match up with both your retirement goals and risk tolerance levels.