Is My IRA Losing Money?
An Individual Retirement Account, or IRA account, can be an excellent way of saving for retirement. But to maximize its effectiveness it must be invested responsibly with an asset allocation that matches both your goals and risk tolerance.
2022 was not kind to stocks, with many IRAs experiencing significant value drops. Yet that shouldn’t cause anyone panic; such fluctuations should simply be taken as a necessary part of life.
Asset allocation refers to the practice of diversifying your investment portfolio among various asset classes with differing risks and returns. Common asset classes include stocks, bonds and cash equivalents; investors use these asset classes to craft a balanced and diversified portfolio. It’s important to remember that asset classes rarely move together as it could impact on IRA performance.
If your investment horizon is long term, investing in riskier assets is fine; just expect some losses along the way and use that as an opportunity to purchase bargain investments at lower prices. Be sure to regularly rebalance your portfolio by selling high-performing investments and investing the proceeds into underperforming ones; diversifying by including precious metals, index funds or certificates of deposit (CDs). Doing this will reduce both risk and volatility within your IRA account.
Investing in precious metals
Precious metals can add valuable diversification and can protect you against the volatility of stocks and bonds, providing your IRA with protection from excessive volatility. But be wary when investing too heavily in this asset class: too much gold or silver could reduce returns offered by other assets; additionally, these precious metals are subject to taxation in the same manner as any other investments.
Precious metals are sought-after investments during times of economic distress or crisis, providing protection from inflation while withstanding market declines effectively. Silver and gold have historically been prized as forms of currency and jewelry; palladium has various industrial applications such as dentistry or electronics that make it less well known as an investment option.
Investing in precious metals can be done through physical bullion or exchange-traded funds (ETFs). But many investors prefer the benefits of self-directed precious metals IRA programs that enable individuals to purchase physical bullion with favorable tax treatment for use within their IRA accounts.
Rebalancing your portfolio
Rebalancing your portfolio is essential to maintaining a long-term investment strategy. Over time, your portfolio may become unbalanced due to market fluctuations or variations among different asset classes; for example, if your initial portfolio consisted of 60/40 stocks/bonds but now contains significantly more stocks, rebalancing would mean selling some for profit and investing more heavily in bonds.
Rebalanced portfolios tend to be more diversified and experience less volatility than non-rebalanced ones, helping keep your asset allocation align with both your financial goals and individual circumstances.
Rebalancing may incur capital gains taxes; you can minimize these costs by conducting the rebalance in tax-deferred accounts such as your IRA and 401(k). An automated service such as SmartAsset’s free tool matches you with advisors in your area so that you can interview them without incurring costs to find one who suits your investment style best.
Investing in a robo-advisor
Robo-advisors are online investment advisors that use algorithms to manage your portfolio. First they ask questions to understand your financial goals and risk tolerance before using their algorithms to suggest a portfolio with stocks and bond exchange-traded funds (ETFs). Fidelity Go and M1 Finance both offer traditional brokerage accounts and retirement account options in addition to charging management fees; you will also pay fund expense ratio.
Robo-advisors monitor your account for opportunities to minimize expenses, such as tax-loss harvesting. This is particularly crucial if you have capital gains and are subject to high tax brackets; but keep in mind that investing for retirement takes decades, so your IRA balance may fluctuate up and down over time.