I have been interested in starting a IRA. But I am confused. What exactly does my money get invested in???? I have been to a lot of websites and the only info I can find is "What is best for you". I cannot find anything about where my money is going. Will I be picking stocks or funds.

Which company is the best for starting an IRA

Any help would be appreciated.


Thanx in advance

Jay

An IRA or a Roth IRA (you didn't state which kind) is an account type, not an investment.

If you open an IRA account with a bank, typically your options would be CDs, money market account, or a regular savings account.

If you open an IRA account with a fund family, you can typically invest in one or several mutual funds offered by that fund family. I often see Vanguard (http://www.vanguard.com) and TIAA-CREF (http://www.tiaa-cref.org) mentioned as good no-load fund families.

If you open an IRA account with a "fund supermarket" (a brokerage that sells a number of mutual funds), you can have your IRA money invested in a number of funds that don't even have to be at the same fund family, and generally you can contact that brokerage house and move money from one fund to another.

If you open a "self-directed IRA" at a brokerage house, you may be able to buy and sell shares of stocks as well as buy and sell shares of mutual funds. "Self-directed IRAs" seem relatively rare but is an option if one wants to trade stocks within one's retirement portfolio.

In all cases, there is usually more paperwork involved and sometimes additional fees because of special reporting and custodial requirements to maintain favorable tax status of that accunt.

As far as which is best, it really depends too much on your savings or investment objectives, risk tolerance, investment horizon, etc., but if you are in for the long haul you would probably want to get stock exposure, either by having the IRA invested in mutual funds that invest in stocks, or having the IRA invest directly in stocks. A no-load S&P500 index fund is one way to get diversified stock exposure for relatively low fees and low cost of entry, but one really should have an investment plan and follow it, rather than rely on some stranger (and my friends sometimes say I am really strange) make investment suggestions.

<< If you open a "self-directed IRA" at a brokerage house, you may be able to buy and sell shares of stocks as well as buy and sell shares of mutual funds. "Self-directed IRAs" seem relatively rare but is an option if one wants to trade stocks within one's retirement portfolio.

In all cases, there is usually more paperwork involved and sometimes additional fees because of special reporting and custodial requirements to maintain favorable tax status of that accunt. >>

I'm going to quibble just a little with an otherwise excellent response.

Self-directed IRAs are far from rare. Any brokerage, discount or otherwise, will be happy to set one up for you for free, and annual maintenance fees are rare. There's really no need to pay them nowadays. The only special paperwork involved is the account application, and that's all boilerplate provided by the custodian.

The custodian's reporting is actually much easier than that involved in a taxable brokerage account, since dividends and sales (1099-DIV and 1099-B transactions) are not reported for activity within an IRA. The only reporting required of the IRA custodian is contributions and account balance.

TMF ExRO
Phil Marti

"How to invest ?" There are so many different ways to invest, maybe you should start out with "How not to invest."

Many investors who had margin accounts (where the investor uses the broker's money to invest, betting that the stock will go up in value) "bought the store" during NASDAQs recent "melt down". The lesson here is to say "NO" if offered such an account.

Another way of "How not to invest" is by putting your entire investment into one business sector, e.g. Automotive, Real Estate. Diversify, diversify, diversify. Spread your investments over many different industries. Study and understand the company. Start out small.

Publications such as Money magazine, Forbes, and Fortune often have sample portfolios which have been put together by money managers. Sometimes they give performance ratings of these money managers, showing their track records. You could learn a lot by reading these.

Please don't ask a friend or relative for an investment recommendation, for if the stock would decrease in value, you would forever blame that friend or relative. Listening to a full service broker could be good..................or not. Going by gut feelings is like throwing a dart at a list of stocks. which could be good..........or not.

There is so much to learn by reading the Fool boards, and the tutorial info provided by this website. Why not just study, study, study and wait for the Market to settle down for awhile? Why not to wait ? Because the Market could go up exponentionaly and you would have been left out in the cold............or not.

There is risk in investing, but there is risk in walking across the street too ! I know, I was a pedestrian in a cross walk, and got hit by a drunk driver and knocked into the middle of an intersection. Guess it just wasn't my time to "Go". I'm still here............investing.

Good luck,

Aunt Pat