retirement

9 common misconceptions about IRAs

Retirement » 9 common misconceptions about IRAs

Contributing is the hard part
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Contributing is the hard part © Goodluz/Shutterstock.com

Contributing is the hard part

Squirreling money safely away in a tax-advantaged account is only the first step. Putting the contribution into an investment is the next step. Often, contributions to a brokerage IRA will go into a money market sweep account earning minimal interest.

"Maybe they're not ready to make that investing decision when they made the contribution decision," says Maria Bruno, senior investment analyst with Vanguard's Investment Strategy Group.

If the money isn't invested fairly soon, investors may lose out on opportunities to let the money grow at a significant rate. The longer they wait, the greater the opportunity cost can be.

Bruno suggests that investors borrow a technique from 401(k) plans and choose a mutual fund to act as a default investment while they decide how they would like to allocate the money over the long term.

"Instead of parking it in a money market, perhaps it would be better to park it in a balanced fund because you get that benefit of being invested in the market right up front," she says.

Keeping your investment horizon and objectives in mind, put your money to work as soon as possible to avoid losing time.

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