I'm kind of new to IRA Investing?

Question

I recently opened an IRA. I have purchased a few mutual funds, but I was wondering if I can also purchase CD's as part of the IRA. Sorry if this seems like a stupid question. Also, if you can do CD's is that a good way to go. I know it is secure but it doesn't have as much growth potential as other options. I am 24

Answer 1

Congratulations! Opening an IRA is a great way to start saving for your retirement. You can purchase CD's as part of an IRA, but I wouldn't recommend it. It has much less growth potential and you might end up costing yourself a bundle of money when you retire. Let me give you a quick example.

By current interest rates a CD might average around 5% per year. If you invest $4,000 in your IRA and we assume you earn 5% per year that would be worth around $23,000 when you are 60.

Some of the mutual funds you picked might average around 9% per year. If you invest $4,000 in your IRA and we assume you earn 9% per year that would be worth around $89,000 when you are 60.

That's a difference of $66,000! Just try not to look at your statement all the time if the market starts to fall. Good luck!

Answer 2

Yes you can do CD's as a IRA. You can do most classes in IRA'S-- mutual funds such as stocks, bonds, short term items such as CD's
If you go with CD's only ---inflation will eat you alive over the long term because of the low interest gain.
When you are young like yourself you need to go with a high level of stocks. Try the Stock Mutual funds first because in time 20-30 years you will be ahead of inflation and make a profit. Over several years you will learn more about your risk tolerance and you can move in the direction you want.
Sounds like you are very conservative now and there are Mutual funds like money markets when you can put some money also. (Much like CD's but you will gain more interest under the IRA tax protection.)
The best is to put money in all classes of mutual funds -stocks, bonds, and cash (mM) maybe 60% stocks, 20% bonds and 20% money market. That still is conservative but it may fit your need.

Answer 3

You can put a CD in your IRA as long as your IRA is in a place where they offer CDs, such as a bank. If your IRA is with, say, a discount broker, you could open an additional IRA at your bank. Personally, with a long-term investing horizon, I wouldn't bother with CDs. Not enough growth, as you said. You're young, build up that account! ;)