Your choice of IRA investment can make all the difference between a good retirement, or ending up frustrated and dejected later on in life. Fortunately, choosing the best IRA doesn’t require any complex understanding of finance. You just need an element of rationality in your investment approach. In case you are having problems choosing the best IRA, here are 5 tips that can help you do it with ease.
1. Go for an IRA custodian with a wide selection
To make the most of your IRA, go for a custodian that has a wide array of investment options. That’s because investments are inherently risky, and the more diversified a portfolio is, the safer it is. A diversified portfolio also allows you to earn higher returns from high growth markets. For instance, by going for an IRA with a wide selection, you would be in a position to include private companies and real estate stocks in your portfolio and significantly magnify your investment returns.
2. Go for an IRA custodian with low fees
Fees are part of the things that can negatively affect your IRA portfolio. Some fees may not be clearly spelled out by your IRA custodian so it’s best to shop around for the cheapest one. Some of the costs you should look out for when creating your IRA portfolio include maintenance fees and trading commissions. The lower they are, the more your IRA will be worth by the time you retire. Remember that the primary objective of building your IRA is to help you have a good life upon retirement, and not to make the investment bankers rich.
3. Choose an IRA based on your investment knowledge
To choose the best IRA for your needs, you need to do a genuine self-reflection on your investment knowledge and capabilities. If you understand how investment works, then you can decide to pick for yourself what goes into your IRA. For instance, if you know how to pick stocks, you can do quite well in a self-managed IRA. However, if you are an investment novice, you would do better if you go for a managed IRA, where you let professionals choose for you what goes into your IRA investment portfolio.
4. Choose one that aligns well with your retirement strategy
IRA investments are by design meant to give you a good life after retirement. That’s why you should go for an IRA investment type that secures your retirement in the most painless way possible, while at the same time ensuring you will have a comfortable life upon retirement. For instance, if you are employed, you should contribute through your 401(k). This makes the investment process painless while ensuring you of a good life later on. On the other hand, if you are self-employed, you can contribute an amount that is in line with the life you want in retirement.
5. Evaluate your risk tolerance
How much risk you can tolerate while investing towards your retirement is a great consideration. If you have a high-risk tolerance, you would do well going for an IRA that exposes you to equities and other high-risk investments. On the flip side, you may consider an IRA that is dominated by CDs (certificates of deposits). These may not give you a high return in the long run, but they do guarantee you a low-risk return.
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