Your IRA is a container, not an investment itself

An IRA holds money, but the money itself goes into investments you choose — stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), or cash. The IRA is the tax-sheltered wrapper. What happens inside that wrapper is up to you. Your IRA custodian (the bank, brokerage, or financial institution that holds your account) provides a menu of investments you can buy, and you decide which ones to put your money into.

This is different from a 401(k) at work, where your employer usually limits you to a preset list of funds. With an IRA, you typically have far more options — sometimes thousands. That freedom means you need to understand what you are choosing and why.

Key Takeaways

  • Your IRA custodian provides the investment options available to you, and different custodians offer different menus — a brokerage may offer thousands of stocks and funds, while a bank may offer mainly CDs and money market accounts.
  • You can hold individual stocks, bonds, mutual funds, ETFs, CDs, and cash in an IRA, each with different costs, risk levels, and time commitments.
  • Mutual funds and ETFs are the most common choice for IRA investors because they spread your money across many holdings and require no stock-picking skill.
  • Your investment choices determine your risk and potential return — a CD in an IRA is safe but grows slowly, while stock funds can fluctuate but historically grow faster over decades.
  • You can change your investments at any time without tax penalty, though you may pay trading fees depending on your custodian and what you buy or sell.

What your custodian offers depends on the type of institution

A brokerage (like Fidelity, Charles Schwab, or Vanguard) typically offers the widest range: individual stocks, individual bonds, thousands of mutual funds, ETFs, CDs, and money market accounts. You can buy and sell these with a few clicks, though some trades may carry a small fee.

A bank usually offers a narrower menu: CDs, savings accounts, money market accounts, and sometimes a limited selection of mutual funds. Banks are straightforward if you want safety and simplicity, but you will not find individual stocks or the full range of bond options.

A robo-advisor (like Betterment or Wealthfront) builds a portfolio for you automatically based on your age and risk tolerance, usually using low-cost ETFs. You answer a few questions, fund the account, and the service rebalances it for you. You do not pick individual investments.

Some people open an IRA at a specific custodian because that is where they already bank or invest, but you can also shop around. The investments available to you matter more than the brand name.

Individual stocks: high control, high time demand

If you open an IRA at a brokerage, you can buy shares of individual companies — Apple, Microsoft, a local utility, a dividend-paying manufacturer. You own a piece of that company, and you keep any dividends it pays. You can sell whenever you want.

The downside is that picking individual stocks requires research, attention, and tolerance for watching your holdings rise and fall. A single bad pick can hurt your returns. Most people who try this underperform the market because they buy high and sell low, or they chase trends. If you do not have the time or temperament for it, individual stocks are not the right choice for an IRA.

Individual stocks also carry concentration risk — if you put too much of your IRA into one company and it struggles, your whole account suffers. Diversification (spreading money across many holdings) is harder to achieve on your own.

Mutual funds and ETFs: diversification with minimal effort

A mutual fund is a pool of money managed by a professional or tracked to an index (like the S&P 500). You buy shares of the fund, not the individual stocks inside it. One fund might hold 500 companies, so your money is spread across all of them. If one company falters, it barely dents your fund's value.

An exchange-traded fund (ETF) works the same way — it holds many stocks or bonds — but trades like a stock on an exchange. ETFs often have lower fees than mutual funds, though the difference has narrowed in recent years. Both are available at brokerages and many banks.

Most IRA investors choose mutual funds or ETFs because they offer instant diversification without requiring you to pick individual companies. You can build a simple portfolio with two or three funds: one for U.S. stocks, one for international stocks, and one for bonds. Rebalancing (selling winners and buying losers to maintain your target mix) is straightforward.

Costs matter here. Look for expense ratios — the annual percentage fee the fund charges. A fund charging 0.05% per year is vastly cheaper than one charging 1.00%, and that difference compounds over decades. Index funds (which simply track a market index rather than trying to beat it) almost always have lower fees than actively managed funds.

Bonds and CDs: lower risk, lower growth

A bond is a loan you make to a government or company. They pay you interest, and you get your principal back at maturity. Bond funds bundle many bonds together, so you do not have to pick individual ones. Bonds are less volatile than stocks — they do not swing up and down as much — but they also grow more slowly over time.

A certificate of deposit (CD) is a savings product where you lock your money away for a set period (three months, one year, five years) in exchange for a fixed interest rate. CDs are insured by the FDIC up to $250,000, so there is no market risk. The trade-off is that you cannot touch the money without penalty, and the interest rate is usually modest.

Many people hold bonds and CDs in an IRA as a conservative portion of their portfolio, especially as they approach retirement. A common approach is to hold a mix — perhaps 70% stock funds and 30% bonds — and adjust the mix as you age.

How to decide what to invest in

Start by thinking about your time horizon. If you will not touch this money for 30 years, you can tolerate stock market swings and should probably hold mostly stock funds. If you will need the money in five years, bonds and CDs are safer choices.

Next, consider your comfort with risk. Some people sleep well at night with a volatile portfolio; others lose sleep. There is no right answer — only what works for you. A financial advisor or robo-advisor questionnaire can help you think through this, but the choice is yours.

Then, build a simple portfolio. A common starting point for younger investors is a total U.S. stock market index fund plus a total international stock index fund, in a ratio like 70% U.S. and 30% international. As you age, gradually shift toward bonds. You do not need dozens of holdings — five or fewer funds is usually enough.

Finally, check the fees. Compare expense ratios across similar funds. A difference of 0.5% per year sounds small, but on a $100,000 IRA over 20 years, it can cost you tens of thousands of dollars in foregone growth.

You can change your investments without tax consequences

Unlike taxable accounts, you can buy and sell investments inside an IRA without triggering capital gains tax. Sell a fund at a profit, buy another one, and there is no tax bill. This freedom means you can rebalance your portfolio, shift your strategy, or change your mind without penalty.

You may pay a trading fee depending on your custodian — some brokerages charge a small amount per trade, while others offer commission-free trading on stocks and ETFs. Some funds charge a redemption fee if you sell them within a certain period. Read your custodian's fee schedule before you invest.

The only tax consequence comes when you withdraw money from the IRA itself. Traditional IRA withdrawals are taxed as income. Roth IRA withdrawals of contributions are tax-free, and withdrawals of earnings are tax-free if you meet the rules. But moving money between investments inside the IRA does not trigger taxes.

Frequently Asked Questions

Can I hold real estate or cryptocurrency in an IRA?

Some custodians offer self-directed IRAs that allow real estate (usually through a limited liability company), precious metals, or cryptocurrency, but these are specialized and often come with higher fees and complexity. Most IRA investors stick with stocks, bonds, funds, and CDs because they are straightforward and widely available.

What happens if I do not choose any investments?

If you fund an IRA but do not invest the money, it typically sits in a cash or money market account earning minimal interest. You are not required to invest it, but cash will not grow much over time. Most custodians will prompt you to choose investments when you open the account.

Should I pick individual stocks or use funds?

Unless you have experience and time to research companies, funds are the better choice. They offer diversification and require no stock-picking skill. Studies show most individual investors underperform the market, so funds are a safer path for most people.

How often should I rebalance my IRA?

Once or twice a year is typical. If your target is 70% stocks and 30% bonds, and stocks have grown to 75%, you sell some stocks and buy bonds to get back to your target. This forces you to sell winners and buy losers, which is emotionally hard but mathematically sound.

Do I need a financial advisor to invest my IRA?

No. A simple portfolio of low-cost index funds requires no advisor. If you want professional guidance, a fee-only financial planner (who charges you directly rather than earning commissions) can help you build a plan. Robo-advisors are also a low-cost option for automated portfolio management.