How to Invest Your Roth IRA

Investors with individual retirement accounts (IRAs) must decide how to invest their money within those accounts. Many tend to buy mutual funds, which are excellent choices because they are easy to manage and most are diversified, that is, they own positions in a broad array of stocks or bonds.

Brokerages will let you open an IRA and use it to buy individual stocks. Some brokerages also give retirement accounts a break on the minimum deposit.

Most brokers offer all the main types of retirement accounts, from traditional IRAs to Roth IRAs and even Sep-IRAs. If you work for a company, you may also want to check your 401(k) plan. Some 401(k)s offer the ability to buy individual stocks.

There are a several things to consider when shopping for a broker for an IRA. Among them are:

Difficulty: Challenging

Instructions

Things You'll Need:

• Money

1. 
    
   AVOID FEE'S

   WATCH FOR FEE'S
   Pay attention to the commissions charged to buy individual stocks. And ask if the brokerage charges additional quarterly retirement account "maintenance" fees. This is especially important with brokerage programs offered by 401(k) plans. Plans often heap on huge commissions or quarterly service charges for the ability to buy individual stocks. You'll want to review your plan's website carefully and make sure the fees are reasonable. If the fees are high, you'll most likely want to stick with mutual funds.

2. 
    
   Mutual Funds

   ACCESS TO MUTUAL FUNDS
   Yes, you want to buy individual stocks, but you may also decide, from time to time, to put money into a mutual fund. Fees to buy mutual funds at many brokerages can be quite high, so you'll want to avoid brokerages with high mutual fund transaction fees. Some brokerages do provide "transaction-free" mutual funds. Before signing up, you'll want to look through the list of transaction-free funds to see if some meet your needs.

3. 
    
   Switching Investments

   SWITCHING INVESTMENTS
   IRA's can be invested in any type of publicly traded security, including stocks, bonds, and mutual funds. Generally, there's no limit to switching investments or money mangers within an institution, although there could be tax penalties involved if you switch between different types of IRA accounts. Some institutions tack on fees for switching accounts to another firm.

4. 
    
   Check Your Options

   YOURSELF
   Just because you can buy individual stocks in a retirement account, doesn't mean you should. Remember, your retirement savings are for the long term and shouldn't be a place to daytrade.

Tips & Warnings

• Do your research before you invest.

Resources

• How to invest your 401k