Do You Select a Mutual Fund for an IRA?
An Individual Retirement Account, IRA, is authorized by the Internal Revenue Service to house a variety of investment options. To have a mutual fund in an IRA, you first need to have a brokerage firm IRA. Unless you are opening a managed account portfolio and giving the financial representative complete investment authority, you have the ability to choose your mutual fund options.
Other People Are Reading
-
Mutual Fund Options
-
There are literally more than 10,000 mutual fund options available to you for IRA investment. Some of these funds allow you to open the IRA directly with a mutual fund, cutting out the financial representative middle man. You really don't save any fees in doing this, since the fund fees don't change and the commission is paid to a broker from the mutual fund itself. The variety of mutual funds vary in risk level and investment objectives. You can get anything from a conservative Treasury Bond fund, to an aggressive international small cap stock fund.
Understanding Share Classes
-
You can have a mutual fund that is sold in different ways called share classes. The most common share classes for consumers are Class A, B and C shares. Class A shares pay a fee when entering the mutual fund often around 5.75 percent unless you buy $250,000 or more; then you get a discount with fees waived at $1 million dollars in purchases, as of 2011. Class B shares are known as back-load funds. You pay nothing to go in, but if you sell it before the term, you will pay a fee for liquidating. These fees usually go for five years and start at five percent declining one percent each year. Class C shares are known as no-load funds which have no up front fee nor back-load fee. Read the prospectus to see the difference in annual fees; loaded funds often have less annual fees than no-load funds.
-
The Sales Pitch
-
It can be both confusing and frustrating to not be given a wide variety of options from your financial adviser. Most financial advisers use a select group of funds and fund families. Much of this boils down to a comfort level of knowing what to expect. A financial adviser wants to be able to give consumers a realistic expectation, of course, understanding that there is never a guarantee of returns. There are times, however, where advisers have "recommended funds" that are pitched because of proprietary benefits. This may not be a higher commission up front, but perhaps a higher trailer for maintaining assets under management.
Finding Your Best Fit
-
There are many resources available to find a mutual fund that fits your investment objectives. Start with third-party rating companies such as Morning Star and Lipper that look at all mutual funds and rate them based on overall performance compared to peers and to market indicators. Read "The Wall Street Journal" or "Kiplinger" for annual recommendations as well. Keep a diversified portfolio of different types of assets, some large cap, some small and some international. As you get older and move into more conservative arenas, bond funds should become a larger percentage of your portfolio.
-
