Ok, so for the first time in our lives (I’m 56), I am going to start taking advantage of the ROTH IRA through my work (1/2 matching up to 6%). I know, I know…I should’ve been doing it long ago. In my defense, I have two pensions (military and teaching), and now is really the first time we have beaten down our debt and have enough of a cushion that I feel comfortable with investing…but really, that’s just an excuse.
AT ANY RATE, now that I have that opportunity, I’m looking at different investment types, and my (small amount of) research into them has only yielded confusion for me. Would some of you find folks please break these down for me “like I’m a 5-year-old”:
Index Funds – ok, I think I at least understand that these are reasonably safe, low-earning accounts. Is that accurate?
Target Retirement Funds (State Street Target Retirement 2025 Fund and also 2030 Fund)
Stable Value Fund
Active Bond Funds – so I have a fair handle on the bond types (thanks to this subreddit)…is this just diversified between the different types of bonds?
Active US Stock Funds (specifically T. Row Price Large Cap Growth Trust)
Active International Stock Funds (specifically BlackRock International)
My primary interest at the moment is in how risk-reward they are (i.e. high risk, high reward, etc…), but I also would like just to have more of an understanding of them as well.
Any help would be greatly appreciated.
What is your retirement horizon and investing objective? That will largely determine what type of fund(s) you need to invest in.
There is no matching for IRAs. I think your work is offering a 401K or similar if there’s a match.
I suggest low cost whole market index funds.
No. Stock index funds are not “low-earning accounts.” They’re safer than actively-managed funds, but over long periods of time, the vast majority of actively-managed funds UNDERPERFORM index funds:
[https://www.cnbc.com/2022/03/27/new-report-finds-almost-80percent-of-active-fund-managers-are-falling-behind.html](https://www.cnbc.com/2022/03/27/new-report-finds-almost-80percent-of-active-fund-managers-are-falling-behind.html)
I would not recommend actively-managed funds at all.
Stock funds are higher risk, higher reward compared to bond funds. Bond funds are usually the safer, lower-earning option, but they can lose money too–as evidenced by this year.
Target date funds are a blend of stock funds and bond funds. They’re like a complete portfolio in one fund, and become more bond-heavy as you get older.
SIMPLE IRA I take it?
At 56, I’d normally say target date fund for your age, or something more conservative than might be appropriate for a 30 year old.
But.
You have two guaranteed lifetime pensions, so you can afford to take more risk than a typical 56 year old.
So 100% to a total market index fund. Even if it craters, not the end of the world in your position
Index funds are NOT low risk, low earnings. They are just diversified within one type of asset – US stocks. Until you learn more, a target date fund is really the only option.
You may find these links helpful:
– [“How to handle $”](/r/personalfinance/wiki/commontopics)
– [Investing](/r/personalfinance/wiki/investing)
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