Opening an IRA, or individual retirement account, is an excellent way to save for retirement. Once you have opened your IRA, you can choose investments that you believe will help your money to grow. There are a wide range of options that you can choose from. The most common choices are bonds, stock, mutual funds, certificates of deposit, annuities and real estate. These are tried-and-true investment vehicles with solid standards and acceptance in the investing community.
Bonds
IRA funds can be invested in bonds. These are debt instruments that act as loan promissory notes to pay a principal over and above the amount invested once the term of the bond has expired. Some bonds will also pay interest on the loan. The U.S. Treasury issues bonds that are considered among the safest in the world. Bonds may also be issued by city, county or state governments to raise money for special projects. Private companies may also issue bonds to provide funds to allow them to grow. Bonds impart no ownership of any organization that issues them.
Stocks
Stocks can also be purchased using IRA funds. Stocks are financial instruments that signify ownership of a company. Each share of stock represents a percentage of ownership. As part of a growth plan, corporations will offer shares of stock. If the company is successful and profits increase, the value of the stock will increase accordingly. If the company's standing in the marketplace fails to improve, the value of stock may drop. Stocks can be bought and sold through stock markets, such as the New York Stock Exchange.
Mutual Funds
An IRA can also be used to purchase shares in mutual funds. Mutual funds are operated by investment companies. These companies raise money by selling shares of the fund to the public, then invest that money in a variety of different assets. The shareholders then have an equity stake in the fund. This also gives them ownership of the securities that the fund invests in. Shareholders can then make selections within the fund, directing their investments to the securities that they think will perform the best. Mutual funds can be more secure than direct stock purchases as they provide built-in diversification and professional management of the investments.
Certificates of Deposit
Certificates of deposit, also known as CDs, can also be invested in using an IRA. CDs are interest-bearing, FDIC-insured debt instruments that are offered by banks and savings and loans. The account holder of a CD promises to leave the investment in place for a period of time in exchange for a return on the investment. The term of the CD can last anywhere from three months to six years. CDs are lower-risk and lower-return investments.
Annuities
An annuity is a contract with an insurance company to provide payments to the annuity holder, usually after retirement. The annuity holder will make investments into the account, which will increase in value and will be tax-deferred until distributions are taken upon retirement or funds are withdrawn from the account prematurely. Annuities are safe investments with a low yield. IRAs can fund annuities.
Real Estate
With money from an IRA, you can also invest in real estate. If the custodian of the IRA allows real estate purchases, you can buy either a share of or an entire property as an investment. There are restrictions to purchasing real estate using IRA funds. The federal government will not allow you to use IRA funds to purchase a residence or vacation home. If you own a business, you're not allowed to lease space within a property that you own or purchased using your IRA.
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