Tending An IRA: Don't neglect your investments
Think of your individual retirement arrangement (IRA) like a garden. You plant seeds, water often, and pull the weeds. In the same way, an IRA must be maintained to produce abundant returns. Saving money is only the beginning. Managing that IRA investment is just as important and can be accomplished with two common options.
Manage it on your own
Self-managing an IRA will save professional fees but will definitely cost time. With this method, investors choose investments for their own portfolio, deciding what and when to buy and sell, and staying on top of current events as well as market trends. Investing in different vehicles, or diversifying, is key. This route is best suited to the experienced investor.
Leave it to the professionals
Some prefer to have a professional actively manage their portfolios for a fee. The manager uses forecasts, trends, and client input to make investment decisions, but no decision is foolproof. This route costs money and thereby reduces the amount available for invest¬ing. It also takes time to research and find the right professional.
Check cfp.net to find a Certified Financial Planner (CFP). Make sure the advice you receive is impartial by selecting a professional with a flat fee instead of one who works on commission. Some planners charge by the hour or fee based on a percentage of assets managed. Even with an active manager, check in periodically to make sure your portfolio is meeting your expectations.
Allocate and rebalance
Regardless of the choice you make initially, keep an eye on your IRA and regularly reevaluate if the investments and management style are still right for you.
- Your savings goals, as well as investment time frame and comfort level for assuming risk, will help determine how to allocate assets (in other words, the mix of stocks, bonds, and cash in your portfolio).
- Changes in investment values will cause the asset allocation to fluctuate. Buy or sell investments to rebalance your portfolio to the desired asset allocations.
- Consider switching management styles if you aren't happy with the way your IRA is performing.
Available investments and management options vary, so research before choosing where your money goes. Don't forget that your financial institution may have great investing options also.
Sources: sec.gov; investopedia.com; dinkytown.net; cfp.net; cnn.com; finweb.com; irs.gov