The IRA is just a tax-advantaged account. The real question is what investors should invest in the IRA. The only safety issue regarding the IRA is that an investor should hold their IRA at a custodian that is insured by the (Securities Investor Protection Corporation).
Are there any best practices to adhere to when investing?
I do not think investors should be in individual stocks. If an investor wants to invest in stocks it should only be stocks with a good dividend, a history of growing their dividend, low debt ratios, and (that are) a big player in the market.
Or an investor should be diversified between all asset classes. The main asset classes are: cash, stocks, bonds, real estate and commodities. A proper allocation between all of these asset classes should be practiced. But also to re-balance every six months to a year to maintain a well diversified portfolio. Commodities and real estate are risky, but when put together with stocks, bonds and cash, (they make) the portfolio less risky.
Is an individual better off investing in a traditional IRA or a Roth IRA?
This question is more about what kind of tax rate the investor thinks they will pay when they retire. Both are tax-advantaged accounts. With one, the Roth, you pay taxes now and not later. With the other, you delay paying taxes until later. If the tax rate you think you will have when you are older will be lower than it is today, then do the Roth.
It is important to understand that the IRA is just a type of account. There is an individual (retirement) account or a (Roth) IRA. The (Roth) IRA has a tax advantage (that) the (traditional IRA) does not. The amount you can invest in each one is usually the same. That is the most difficult question. However, if one follows the advice from above, I think they will do well with less risk than other strategies.
We would like to thank Todd Feldman, Ph.D., assistant professor of finance at San Francisco State University for participating in this interview.