Are IRAs Safe Investments?
Economic turmoil leads investors to seek safe havens for their money. Asking, "Are IRAs safe investments?" leads to a simple answer: "It depends."
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Definition
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First, it's important to understand exactly what an IRA is. It is an individual retirement account managed by a custodian (like a bank or investment firm). How the money is invested within the account is at your discretion.
Investment Options
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Your IRA can be invested in any of a number of ways, including stocks, bonds, treasury bills, real estate, commodities and gold. The choice is yours, and the safety of each type of investment varies.
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Risk vs. Reward
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As with all investing, you must weigh your tolerance for risk. If you worry about the volatility of the stock market, for example, you probably want to avoid investing your IRA in stocks. Investing is a matter of risk and reward. The riskiest investments carry the greatest chance for a large return. Safe investments generally yield minimal interest and gain although the contributions are not subject to loss.
Money Markets
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Money market deposit accounts are one of the safest investment choices for your IRA. They act like regular savings accounts but usually earn greater interest. Besides safety of your contributions, these accounts are also backed by the Federal Deposit Insurance Corp. Other types of IRA investments (such as stocks, bonds and money market mutual funds) are not.
Balanced Portfolio
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Financial advisers usually recommend having a balanced portfolio to reap the greatest benefits with the fewest risks. The same thing is true with your IRA. Your accounts can be diversified, and you can include several different types of investments.
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