IRA Investment Options: Which Is Right for You?
What are the best IRA investment options? Discover IRAs and types of investments to hold in an IRA, from mutual funds to stocks.
Saving for retirement is a marathon—not a sprint—but starting off on the right foot will give you a massive leg up. You’ll need a strong understanding of the basics, from which type of account suits your needs to what investments will help you reach your goals as quickly as possible.
Let’s jump in with a few ideas for the best IRA investment options right now.
What is an IRA? All about individual retirement accounts
In 2022, the Fed found that 34% of American households have at least one individual retirement account (IRA). If you’ve started thinking about your retirement, you’ve probably either looked into or opened an IRA, too.
First introduced in the early 1970s to provide a tax-advantaged savings option to workers not covered by employer-sponsored retirement plans, IRAs now take various forms that serve different needs and applications. Their significant tax advantages remain one of their most appealing attributes. Contributions made to traditional IRAs are often tax-deductible, reducing your current taxable income. An account’s earnings grow tax-deferred until withdrawal, allowing your investments to compound more rapidly.
Top IRA providers
Eager to get started? Looking at how to invest in a Roth IRA or an SEP IRA? Let’s walk through some popular providers to help you make the best decision. (Or you can explore your options with Composer. Among other advantages, Composer is one of the only platforms that allow you to employ automated strategies.)
Charles Schwab
Charles Schwab is a top-rated broker with an extensive selection of thousands of mutual funds with no transaction fees. Schwab offers commission-free trades and is well known for its prompt and easy-to-use customer service.
Pros: Wide range of investment options, customer-centric approach, no-transaction-fee mutual funds
Cons: Some may find the trading platform less advanced than other options.
Wealthfront
Wealthfront provides robo-advisors that allow for automated portfolio management, making it an ideal choice for those who prefer a low-key, hands-off approach. The service’s algorithms can tailor portfolios to your preferences and specific risk tolerance.
Pros: Hassle-free automated investing, tax-efficient strategies, and a relatively low annual fee
Cons: Limited human interaction and customer service options for those who prefer a personal touch
Fidelity
Fidelity is a well-established provider offering a broad range of investment options, from mutual funds and ETFs to stocks and bonds. It provides extensive access to research and educational resources.
Pros: Wide variety of investment choices, robust research tools, excellent customer service
Cons: Some fees may apply, such as expense ratios for certain mutual funds.
Vanguard
Vanguard is renowned for its low-cost index funds and ETFs, making it a favorite among cost-conscious and beginner investors. It provides a broad selection of low-fee investment products, perfect for building a diversified portfolio.
Pros: Industry-leading low fees, excellent reputation, a broad range of index funds, and a commitment to investor interests
Cons: Limited options for active trading and purchasing individual stocks or bonds
ETRADE
ETRADE offers many investment options, including stocks, bonds, ETFs, and mutual funds. It’s a well-established online broker known for its user-friendly platform and comprehensive research tools.
Pros: Intuitive and user-friendly platform, plentiful research and educational resources, and various investment choices
Cons: Some fees may apply, particularly for options and futures trading.
Ally Invest
Ally Invest combines low-cost trading with a user-friendly interface, making it an attractive option for budget-conscious investors. Ally hosts a variety of investment options, including stocks, ETFs, bonds, and options.
Pros: Competitive pricing, intuitive trading platform, and no account minimums
Cons: Limited international trading capabilities and fewer advanced features
Merrill Edge
Merrill Edge, a subsidiary of Bank of America, boasts seamless integration of banking and investing services. They provide access to research from BofA Merrill Lynch Global Research.
Pros: Integration with Bank of America accounts, extensive research, and a user-friendly platform
Cons: Higher trading fees for those who do not meet certain balance requirements
Most common investments in IRAs
You can make and hold numerous investments in an IRA. Bear in mind that the best Roth IRA investments may differ from the best SEP IRA investments. Here are a few ideas to get you started:
Savings accounts and certificates of deposit (CDs)
Savings accounts and CDs are considered some of the safest investments for your IRA. They provide liquidity and are protected by the Federal Deposit Insurance Corporation (FDIC).
Savings accounts offer a secure place to park your funds while earning interest, making them an excellent choice for conservative investors. CDs, on the other hand, provide a fixed interest rate for a specified term, typically ranging from a few months to several years. They offer slightly higher interest rates than regular savings accounts in exchange for locking in your money.
However, “safe” investments such as savings accounts and CDs may be risky in another sense—leaving you vulnerable to inflation, for instance.
Treasury bills (T-bills) and US savings bonds
T-bills and savings bonds are low-risk, government-backed investments ideal for preserving capital while earning a modest return. T-bills are short-term debt securities issued directly by the Treasury. They have maturities ranging from a few days to one year, making them highly liquid.
Again, reputedly “safe” investments may carry their own risks—especially over extended periods.
Money market funds and accounts
Money market funds and accounts are attractive options for investors seeking both safety and liquidity in their IRA investments.
Money market funds pool investments from multiple individuals and invest in low-risk, highly liquid securities, including cash, cash equivalent securities, CDs, and U.S. Treasuries. Money market accounts, offered by banks and credit unions, provide a similar level of safety and liquidity. They typically carry a slightly higher interest rate than standard savings accounts.
Stocks
Stocks represent ownership in a company and are associated with higher risk and potentially higher rewards, but IRA stock options truly run the gamut. Investing in individual stocks allows you to capitalize on the growth potential of specific companies.
Many investors diversify their stock holdings by selecting a mix of large-cap, mid-cap, and small-cap stocks across various sectors to spread risk.
Bonds
Bonds are debt securities issued by governments, municipalities, or corporations. They are generally considered lower risk than stocks and offer periodic interest payments.
Within an IRA, investors can choose from various types of bonds, including U.S. Treasury bonds, corporate bonds, and municipal bonds (aka muni bonds). Bonds can provide steady income, making them a popular choice for retirees.
Mutual funds and exchange-traded funds (ETFs)
Weighing IRAs versus mutual funds? You don’t have to choose! You can own mutual funds within an IRA. Likewise, you can own ETFs inside various IRA types. For instance, the best ETFs for Roth IRAs may be general market trackers such as VTI.
More generally, mutual funds and ETFs offer diversification by pooling investors’ money to hold a diversified basket of stocks, bonds, or other assets. They’re professionally managed and follow various investment strategies, making them suitable for investors seeking diversification and convenience.
Investors can choose from stock mutual funds, bond mutual funds, sector-specific ETFs, and more, exposing them to a range of businesses and industries.
Real estate investment trusts (REITs)
REITs are investment vehicles that allow indirect investment in real estate properties, such as commercial or residential buildings, by owning shares in the trust. REITs can potentially yield income through dividends and capital appreciation, making them a valuable addition to an IRA seeking income-generating holdings.
These investments can promote diversification and reduce overall portfolio risk.
Precious metals
Some IRA accounts allow you to invest in precious metals, like gold and silver. These investments are typically held in the form of physical bullion or coins.
Precious metals can hedge against inflation, making them attractive to investors concerned about economic stability. Holding physical metals in an IRA is a unique strategy that requires careful storage and custodial arrangements.
Build a diversified IRA with Composer
You know you need a diversified portfolio, but where to begin?
Composer offers a powerful toolkit to help you effortlessly achieve diversification. You can easily spread your investments across various asset classes using our AI-powered features and algorithmic tools. You can also set up automated trading to simplify your investing life—a feature not available from providers like Fidelity and Schwab.