Is a Roth IRA Secure?
When you invest in a Roth IRA, you can have your money grow tax-free all the way out to retirement. As long as you follow the rules established by the IRS, you can withdraw the money in your Roth IRA without paying a dime in Federal income taxes. While a Roth IRA is a good investment vehicle, the funds within that account are not guaranteed the way your bank account is.
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Not Guaranteed
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Unless you choose to invest your entire Roth IRA in an FDIC-insured account like a certificate of deposit or a money market account, the money you put into that Roth IRA is not guaranteed. That means that your Roth IRA can either rise or fall in value, depending on what the stock or bond market does during the time period when the money is invested. That is why it is important to choose a variety of different investments to spread out your risk and increase the odds that the account will grow over time.
Security vs. Growth
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You can make your Roth IRA investment more secure by investing in only safe fixed income investments like certificates of deposit and money market funds. However, you will likely give up a great deal of growth potential and income in the process. As the safety of an investment goes up, its potential for future growth goes down. If you are too conservative with your Roth IRA, you could lose purchasing power over time if the investments in that account fail to keep up with the rate of inflation.
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Investment Options
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If you hold a Roth IRA with a mutual fund company or brokerage firm, you can invest the money any way you wish. You can invest in high growth but high risk options like individual stocks. You can also invest in widely diversified stock mutual funds that spread the risk by investing in the entire stock market. If you want more security, you can invest in balanced funds, which invest in a mix of more stable stocks and bonds.
Rebalancing Your Portfolio
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How you invest your Roth IRA is the function of a number of factors, including the amount of risk you are comfortable with and how long you have to go until retirement. If you are decades away from retirement, you might be able to recover from any bear markets along the way. But as retirement gets closer, the margin for error gets less and less. Rebalancing your portfolio by moving money from risky investments like stocks and mutual funds to fixed income securities can protect the money you will need in the first few years of your retirement while allowing the rest of the money to grow and compound.
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