How to Invest Your IRA: 7 Simple Ways to Grow Your Retirement Savings
Written by
Rudri Patel
Edited by
Nupur Gambhir
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The smartest way to invest your IRA is by sticking to proven strategies that balance growth and protection. Diversify your portfolio, use low-cost index funds, mix stocks and bonds according to your risk tolerance, and consider options like target-date funds or dividend-paying stocks. These seven simple approaches can help your IRA grow steadily and keep your retirement savings on track.
Option 1: Invest Your IRA in Mutual Funds
A mutual fund is a pool of money collected from many investors and invested in a mix of stocks, bonds, and sometimes ETFs. The fund is managed by professionals, making it a good choice for people who want diversification without having to pick individual investments.
Key Features
- Diversifies your risk by spreading money across multiple investments
- Can be actively managed (professionals choosing investments) or passively managed (tracking an index)
- Funds are typically categorized by risk level: conservative, moderate, or aggressive
Best For
Investors who prefer a hands-off approach with professional oversight.
Smart Move
If you’re just starting out, consider a balanced or target-risk mutual fund for a mix of growth and stability.For instance, investing $5,000 in a moderate mutual fund today could grow significantly over 20 years, depending on market performance.
Option 2: Use Index Funds for Low-Cost Growth
An index fund is a type of investment that tracks a specific market index, like the S&P 500. Instead of trying to beat the market, it’s designed to match overall market performance.
Key Features
- Very low fees compared to actively managed funds
- Broad diversification across hundreds of companies
- “Set it and forget it” style investing with minimal upkeep
- Generally tax-efficient and easy to manage
Best For
Long-term investors who want steady, predictable growth with minimal effort.
Smart Move
If you want simple, low-cost growth, index funds are an excellent choice. Over time, even modest contributions can add up significantly as the market grows. For example, the average index fund tracking the S&P 500 has historically delivered strong long-term returns.
Option 3: Buy ETFs (Exchange-Traded Funds) in Your IRA
ETFs, or exchange-traded funds, are collections of assets such as stocks, bonds, or commodities that trade on the stock market like individual stocks. They combine elements of mutual funds and stocks, offering both diversification and flexibility.
Key Features
- Lower fees than most mutual funds
- Choice between broad-market funds or specific sector funds
- Traded throughout the day like individual stocks
- Often more tax-efficient than mutual funds
Best For
Beginner investors who want diversification with flexibility, or those who prefer the ability to actively trade during the day.
Smart Move
ETFs are a good choice if you want more control than mutual funds offer, along with lower costs and easier trading. For example, many investors use ETFs to balance low fees with the ability to fine-tune their portfolios.
Option 4: Invest IRA Funds in Individual Stocks
Investing in individual stocks means buying shares of specific companies. This gives you direct ownership and the potential to benefit from dividends and stock price growth.
Key Features
- Requires research and ongoing monitoring
- Offers higher potential returns than diversified funds
- Comes with greater risk and volatility, but also more potential reward
Best For
Experienced investors who are comfortable with higher risk and actively managing their portfolio.
Smart Move
Use only a small portion of your IRA — about 10% to 15% — for individual stocks. This allows you to benefit from potential growth without exposing your entire retirement savings to unnecessary risk.
Option 5: Use Target-Date Funds for a Hands-Off Strategy
Target-date funds are a type of mutual fund that automatically adjust your asset mix as you get closer to retirement. They start with a higher allocation to stocks when you’re younger, then gradually shift toward bonds and other conservative investments over time.
Key Features
- Begin with a higher stock allocation in early years
- Retirement year is pre-set (e.g., 2050, 2060)
- Asset mix automatically becomes more conservative as retirement approaches
Best For
Investors who have a clear retirement date in mind and prefer a hands-off investment strategy.
Smart Move
If you’re unsure about how to balance risk on your own, a target-date fund offers a simple, “set it and forget it” option that adjusts automatically to keep your portfolio aligned with your stage of life.
Option 6: Invest in Bonds for Lower Risk
Bonds are debt securities issued by governments, corporations, or municipalities to raise money. When you buy a bond, you’re essentially lending money to the issuer in exchange for regular interest payments, plus the return of your principal when the bond matures.
Key Features
- Help minimize risk and balance your portfolio
- Provide steady interest income
- Can be held until maturity or sold on the secondary market
- Available in many types, including government, municipal, and corporate bonds
Best For
Investors who want to preserve capital and reduce overall portfolio risk.
Smart Move
As you approach retirement, consider increasing your allocation to bonds. They provide stability and income, which can help protect your savings from market volatility.
Option 7: Combine Strategies for a Diversified IRA
You don’t have to stick with just one investment strategy inside your IRA. By combining different asset types, you can spread out risk and improve your chances of long-term growth.
Key Features
- Mixes multiple investment strategies (funds, stocks, bonds)
- Reduces overall risk through diversification
- Balances growth potential with portfolio stability
- Flexible–can be tailored to your age, goals, and risk tolerance
Best For
Investors who want a balanced approach that minimizes risk while still capturing growth opportunities.
Smart Move
Consider a sample mix that fits your stage of life. For example: 60% index funds, 25% mutual funds, 10% individual stocks, and 5% bonds. Younger investors may lean more aggressively, while those closer to retirement may shift toward conservative blends.
Choose the Right IRA Provider for Investing
When you’re investing for the long haul, picking the right IRA provider can make all the difference. Think of it as finding a long-term home for your retirement savings — one that really fits your financial needs and goals.
Not all IRAs are created equal, so you need to decide which provider works best for you. Here are some features that you should look for:
- Low fees. Check whether the IRA provider requires a minimum opening balance. Some accounts start at $0, while others may ask for $500 or more.
- Reputation and security. Look for a provider with a strong industry reputation and robust security measures to keep your money and data safe.
- Automation tools. Features like automatic deposits or portfolio rebalancing can make saving and investing easier over the long term.
- Good fund choices. Look for a brokerage that offers investments you want. Ideally, you want a provider that has the option to buy ETFs, mutual funds, robo-advisors, and self-directed choices.
- User-friendly platforms. Many transactions will be conducted online and so you want a platform that is easy to navigate.
- Customer support. Pick a provider that offers reliable service and support, whether through live chat, phone assistance, or in-person help at a local branch.
Compare Brokerages, Robo-Advisors, and Banks
Choosing where to open your IRA depends on how hands-on you want to be with your investments. Here’s how the main options stack up:
| Provider Type | Best For | Investment Options | Pros | Cons |
|---|---|---|---|---|
| Brokerages | Hands-on investors | Stocks, ETFs, mutual funds, bonds | Maximum choice, control, flexibility | Requires more time and knowledge |
| Robo-Advisors | Hands-off investors | Primarily low-cost ETFs | Automated, diversified, low effort | Limited customization |
| Banks/Credit Unions | Conservative savers | CDs, high-yield savings accounts | Very safe, FDIC insured, stable returns | Limited growth potential |
Top Brokerage Picks
- Vanguard. Low-cost mutual funds and target-date funds, a strong choice for hands-off, long-term investors.
- Fidelity. Commission-free trades, no account fees or minimums, beginner-friendly platform with strong tools.
- Charles Schwab. No account minimums, excellent educational resources, and ideal for self-directed investors.
Choosing the Best Fit
Brokerages offer the most flexibility and growth potential, while robo-advisors are ideal for set-it-and-forget-it investing. Banks and credit unions work best for ultra-conservative savers who prioritize safety over returns.
FAQ
- Do I need a lot of money to invest in an IRA?
- No. Many financial institutions make IRAs easy to open with very low minimums—sometimes as little as $1. You can start small and build up over time.
- Can I change my IRA investments later?
- Yes. You can adjust your IRA’s investment allocation whenever you like, and it won’t trigger taxes or penalties. This flexibility allows you to rebalance as your goals or risk tolerance change.
- What happens if I lose money in my IRA?
- Unfortunately, you can’t deduct IRA losses on your tax return. The good news is that retirement accounts are designed for long-term growth, so short-term losses often balance out over time.
- Is it better to use a Roth IRA or Traditional IRA for investing?
- It depends on your financial situation. A Roth IRA may be better if you expect to be in a higher tax bracket later, since withdrawals are tax-free in retirement. A Traditional IRA may make more sense if you’re in a higher tax bracket now, because contributions are tax-deductible.
- What’s the safest investment for an IRA?
- The safest options are those that protect your principal, such as CDs, bonds, money market funds, or high-yield savings accounts. These won’t deliver high returns, but they help preserve your balance and provide stability.
