Selecting the Best Investments for Your Retirement Accounts

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RetireSelect wisely when choosing investments for your retirement account.

When selecting investments for your retirement account,   1. Examine the risk profile of your chosen investments and 2. Determine how you can fully utilize the tax advantages that come with your qualified retirement accounts. 

So, how do you do it? How can you determine which investments should go into your retirement account and which ones should be left in your taxable account? Here are some things you need to consider if you want to build a comfortable nest egg for the future.

Clarify your goals. You need to identify your financial goals and think about your personal situation before you start choosing the type of investments that will go into your portfolio. Think about your overall retirement plan before you start working on your investment plan so you can make the right decisions.

Establish the risk profile of your overall portfolio. Work with a financial planner to examine the contents of your investment portfolio. Determine how long you should invest your money and the best time to start taking funds from your accounts. Tip: Consult with a professional financial planner and not someone who is just trying to sell you something. Remember, this is your life savings so you need to do everything you can to protect it.

Decide how you will diversify your investments. Now that you have decided on the contents of your portfolio, you should start choosing the best asset classes and styles of investments that will help you achieve your financial goals. To balance out the risks and returns on your investments, you should include a number of domestic and international stocks and bonds, real investment trusts and commodities, and short-term low risk savings in your portfolio.  

Determine which investments should go into your retirement account. To enjoy maximum return on your investment, you should put investments that generate the most current taxable income into your individual retirement account and 401(k). This move will allow your money to grow tax-deferred for years. For best results, put corporate and government funds, long-term certificates of deposit, stocks and stock funds and real estate funds into your retirement accounts. Municipal bonds, stock funds that are held for appreciation, money market funds and other short term accounts into your regular taxable account since they are naturally tax-deferred.

Consider other factors. Aside from minimizing your taxes, you also need to consider your personal liquidity situation and other taxes (estate and inheritance taxes) that may affect your estate in the future. You need to make sure that you have enough money saved for emergency situations since you will be penalized by the IRS if you touch the money that you have invested in your retirement accounts before you reach your retirement age.