What Mix of Mutual Funds to Put in an IRA?

You should review and change your funds as you age.
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Mutual funds usually include a mix of stocks and bonds, often specializing in certain sectors or specific investment strategies. Funds that represent a wide range of financial holdings in different industries protect your long-term retirement plans in an individual retirement account. The diversity of your investments helps your IRA grow even when certain investments do not perform well. Review your IRA periodically to sell poor performers and replace them with more promising mutual funds.

Percentage Changes

The right mix of stocks and bonds depends on your planned retirement date. A traditional method includes using your age to determine the percentage of bonds in your retirement account. At age 40, you would have 40 percent invested in bonds, and then increase it to 60 percent when you reach age 60. Stock investments provide a greater chance of better returns, but also include some risk, which you can afford at a younger age. Bonds offer safer investing because they are issued through government and corporate entities paying back loans at a fixed rate of interest on a specific date.

Investing for Your Retirement Date

Target date funds, also known as lifecycle funds, rebalance your investments over time. Fund managers change investments to meet your goals at a specific time of retirement. The funds are sold by date, such as a 2040 fund, for example. There are greater risks the further away the date. But as the target date nears, the fund changes its balance of investments with a shift toward better income-producing investments. The funds are designed to contain the right mix for your age and become more conservative and secure as you get closer to retirement.

Balancing Act

Balanced funds, a mixture of stocks and bonds in a broad range of asset allocations, help handle fluctuations in the market. The economic cycle includes times when stocks perform better and when bonds do better. A balance of stocks and bonds provides less volatility for a long-term retirement account. Investing in different size companies also provides needed balance because small-cap, mid-cap and large-cap stock funds often perform differently during certain economic cycles.

Creativity with Time

Experiment a little if your retirement is far off by getting more involved in your investments. For example, you might try value funds, which hold stocks that fund managers believe are underpriced because of short-term enthusiasm for other stocks. The stocks in the funds are based on long-term trends instead of temporary appeal. Sector funds invest in specific sectors, such as technology, healthcare or financial markets. They offer growth in your portfolio when those particular sectors become highly profitable during certain periods. Sector funds do not have investments across a wide range of the market. However, you can rebalance these funds with regular reviews of your IRA portfolio to take advantage of better profit potential in stronger sectors during a given period of time.

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