You’ve contributed to an IRA—congratulations! The next step is to invest that money—it needs to work for you. And one of the best ways to give your money a chance to grow over the long term is by investing as much as you are comfortable with in a diversified portfolio of stock mutual funds, ETFs, or individual stocks.
As a general rule, the more time you have to save, the greater the percentage of your investments that should be allocated to stock mutual funds. And even if you are closer to retirement, your retirement may last for decades, so that means your money still needs to grow.
How much in stocks based on your feelings about risk
It’s important that your stock exposure matches your comfort with risk, your investment horizon, and financial situation. That means you need to be comfortable with the ups and downs of the stock market. You don’t want to sell in a panic when stocks fall—locking in losses and potentially making it harder to recover.
The four investment mixes can give you an idea of what percentage of stocks to invest in, based on how you feel about risk. The conservative portfolio has the least amount of risk, and the aggressive the most. It also shows how each performed over a long period of time, in different markets.
How much in stocks based on your age
You can also use your age as a guideline when determining how much to invest in stocks. If you are younger than age 50, consider investing as much in stock mutual funds as you are comfortable with. Growth is important, and you have time to ride out any market ups and downs. The chart shows how much a $5,500 IRA investment could be worth after 35 years.
If you are age 50 or older, growth remains important—after all, your retirement could last for three decades or more—but now you must balance that need for growth against the need to protect what you have saved.
What kind of investor are you? Don’t have the time and interest it would take to choose among stock mutual funds or individual stocks? A target date fund lets you pick the fund with the target year closest to when you want to retire. The target date fund manager then selects, monitors, and adjusts the investment mix.
If you’re doing it on your own, you need to diversify your allocation to stocks. That way, your portfolio isn’t dependent on any one type of investment, although diversification does not ensure a profit or guarantee against loss. Consider stocks of companies both big and small, from different parts of the world, and in different industries and sectors, or mutual funds that invest that way.
You might want to look at low-fee investments such as index funds or exchange-traded funds (ETFs) that simply track the broad market through a benchmark index.
Now that you have a sense of how to invest your IRA, here are three ways to get started.
- Use our tools.
Get an analysis of your current portfolio, assess your financial situation, and find ideas to help you create an appropriate investment strategy with our Planning & Guidance Center (login required).
- Choose investments on your own.
If you want to invest in mutual funds, there are a number of ways to choose.
- Mutual Funds Research®: Search and compare funds, or use Fund Picks from Fidelity or Picks from Independent Experts to get ideas.
- A one-fund option: A Fidelity Freedom® Fund invests in a mix of Fidelity mutual funds. Freedom Funds are designed for investors expecting to retire around the year indicated in each fund’s name; you choose the fund closest to the year you expect to retire.
- Let someone else manage it for you.
If you prefer to have an investment professional manage your IRA, learn about Fidelity managed accounts.
Put your money to work.
Put your IRA to work for you. If you have 30 or 40 years until retirement and you are comfortable with the risk, it’s important to build potential growth into your portfolio through a significant allocation to stocks. Even as you get closer to retirement age—say within 10 to 20 years—stocks can still play an important role.
Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.
Target date investments are generally designed for investors expecting to retire around the year indicated in each investment's name. The investments are managed to gradually become more conservative over time. The investment risk of each target date investment changes over time as the investment's asset allocation changes. The investments are subject to the volatility of the financial markets, including that of equity and fixed income investments in the U.S. and abroad, and may be subject to risks associated with investing in high-yield, small-cap, and foreign securities. Principal invested is not guaranteed at any time, including at or after the investments' target dates.
ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.
ETFs are subject to market fluctuations of their underlying investments and may trade at a discount to NAV.
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