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Not comfortable picking stocks for your retirement plan? Read on for an option that might take the pressure off.
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The money you have in your IRA shouldn’t just sit in cash. Rather, it’s important to invest your IRA funds so they grow into a larger sum in time for your retirement. And you’ll usually hear that loading up on stocks is a good bet due to their history of delivering strong returns.
But what if you’re not comfortable with the idea of investing your IRA in different stocks? It may be that you’re not sure what financial data to look at. Or maybe you do have a sense of what information is important, but you really don’t want to put in the time to research stocks one by one.
The good news is that there’s an easy way to invest your IRA if you’re overwhelmed by the idea of hand-picking stocks, or it’s something you simply have no desire to do. And you can still reap the benefit of solid returns in your retirement plan.
You can always fall back on ETFs
ETFs, or exchange-traded funds, are a good way to diversify your portfolio without having to do a lot of work. When you buy shares of an ETF, you’re buying a collection of stocks rather than buying stocks individually.
Now ETFs come in different forms. You could buy bond ETFs if that’s a route you want to take, and you can also buy sector-specific ETFs (for example, healthcare ETFs, energy ETFs, and so forth). But if you want to really make your life easy, you may want to focus on S&P 500 ETFs.
The S&P 500 is an index that’s comprised of the 500 largest publicly traded companies. The S&P 500 is commonly used as a benchmark for how the stock market is doing on a whole. When you hear on the news that the stock market fell or rallied, what that often means is that the S&P 500 index lost or gained value.
So what can an S&P 500 ETF do for your IRA? Well, over the past 50 years, that index has generated an average annual return of 10% before inflation.
Let’s say you invest your IRA in S&P 500 ETFs only, and you put $250 a month into that account over a 40-year time period. Assuming that same 10% return, you’ll end up with more than $1.3 million at the end of your investing window. That’s a pretty nice pile of money to bring with you into retirement.
Investing doesn’t have to be stressful or complicated
The one drawback of investing your IRA in S&P 500 ETFs is that doing so won’t allow you to beat the broad market. On the other hand, if you pick stocks for your IRA, you might end up with a much higher return if those companies perform particularly well.
But if you’re not confident in your ability to choose the right stocks, or you just don’t want all that pressure, then there’s absolutely nothing wrong with turning to ETFs. Doing so might make your life easier and help you avoid a world of stress.
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