You choose your investments after you open the account, not before

A Roth IRA is a container—a tax-advantaged account at a bank or brokerage. Opening one does not automatically invest your money. Once you fund it, you then decide what to buy inside it: stocks, bonds, mutual funds, exchange-traded funds (ETFs), or cash. The brokerage or bank you choose determines what investment options are available to you.

The process works like this: you open a Roth IRA with a financial institution, deposit money into it, and then use that money to purchase investments through that same institution's platform. Your contributions sit as cash until you tell the institution what to buy. The tax benefits of the Roth—tax-free growth and tax-free withdrawals in retirement—apply to whatever investments you choose, as long as you follow the withdrawal rules.

Different institutions offer different menus of investments. A bank's Roth IRA might offer only CDs and savings products. A brokerage like Fidelity, Schwab, or Vanguard offers thousands of stocks, bonds, mutual funds, and ETFs. Some employers offer Roth IRAs through payroll, which typically funnel into a brokerage platform with a standard investment menu. The institution you pick shapes what you can actually buy.

Key Takeaways

  • Opening a Roth IRA and funding it are two separate steps from actually investing the money—your deposits sit as cash until you purchase something.
  • You choose investments through the brokerage or bank's platform after you log in, using the same way you would buy anything else online.
  • Starting with a simple, low-cost option like a target-date fund or a broad index fund is a common approach for people new to investing.
  • Your brokerage charges no fee to buy most mutual funds and ETFs, but some investments carry internal costs you should understand before you buy.
  • You can change your investments at any time without tax penalty, and moving money between investments inside the same Roth IRA does not count as a withdrawal.

Where to open a Roth IRA and what that choice means for investing

The institution you choose determines your investment options. A full-service brokerage like Fidelity, Charles Schwab, E*TRADE, or Vanguard lets you buy individual stocks, bonds, mutual funds, and ETFs. Robo-advisors like Betterment or Wealthfront automate investment choices based on your age and risk tolerance. Banks like Chase or Bank of America offer Roth IRAs but typically limit you to their own CDs, savings accounts, and money market funds.

Most people opening a Roth IRA for the first time choose a major brokerage because the investment menu is broad and the account setup is straightforward. You can open an account online in 10 to 15 minutes, fund it by linking a bank account or mailing a check, and then start investing immediately. There is no fee to open the account at most brokerages, though some charge annual account fees if your balance falls below a minimum (often $0 to $2,500, depending on the firm).

If you are unsure what to invest in, a robo-advisor removes the decision-making. You answer questions about your age, income, and comfort with risk, and the platform automatically builds and rebalances a portfolio of low-cost index funds for you. The trade-off is that robo-advisors typically charge an annual fee of 0.25% to 0.50% of your account balance, whereas a traditional brokerage charges nothing if you buy index funds or ETFs on your own.

How to actually buy investments inside your Roth IRA

Once your account is funded, log into your brokerage's website or app and look for a "Trade" or "Invest" button. You will see a search box where you can type a stock ticker (like AAPL for Apple), a fund name, or a fund ticker (like VTSAX for Vanguard's total stock market index fund). Select the investment, enter the dollar amount or number of shares you want to buy, and confirm the order.

For stocks, you typically buy by share count—you might buy 10 shares of a company at $150 per share. For mutual funds and ETFs, you can buy by dollar amount—you might invest $5,000 in a single fund. The order executes immediately for ETFs and stocks (during market hours, which are 9:30 a.m. to 4 p.m. Eastern on weekdays). Mutual fund orders execute once per day, usually at the market close.

You do not need to invest all your money at once. Many people fund their Roth IRA and then buy investments gradually over weeks or months. This approach, called dollar-cost averaging, can reduce the risk of buying everything right before a market downturn. You can also change your mind: selling an investment inside your Roth IRA and buying something else does not trigger taxes and does not count as a withdrawal.

Common investment choices for people new to Roth IRAs

A target-date fund is designed for people who know roughly when they will retire but do not want to pick individual investments. You choose a fund labeled with your expected retirement year—for example, "Vanguard Target Retirement 2055 Fund" if you expect to retire around 2055. The fund automatically holds a mix of stocks and bonds that becomes more conservative as you approach that year. The fund rebalances itself, so you do not have to.

An index fund or exchange-traded fund (ETF) that tracks a broad market index is another straightforward choice. Examples include the S&P 500 index (which holds 500 large U.S. companies), total U.S. stock market index (which holds thousands of U.S. companies of all sizes), or total international stock market index. These funds charge very low fees—often 0.03% to 0.10% per year—because they simply hold whatever companies are in the index rather than paying a manager to pick stocks.

Some people build a simple portfolio by buying two or three index funds: one for U.S. stocks, one for international stocks, and one for bonds. A common split for someone in their 30s might be 60% U.S. stock index, 20% international stock index, and 20% bond index. As you age, you can shift toward more bonds and fewer stocks, or you can let a target-date fund do that automatically.

Individual stocks are also an option, but they require more research and carry more risk than funds. If you choose individual stocks, many people limit them to a small portion of their Roth IRA—perhaps 10% to 20%—and keep the rest in index funds or target-date funds.

Understanding the costs inside your investments

Your brokerage does not charge you a fee to buy most mutual funds and ETFs. However, the investments themselves have internal costs, called expense ratios, that you pay whether you notice them or not. An expense ratio is a percentage of your account balance charged annually. A fund with a 0.05% expense ratio costs $5 per year on a $10,000 investment. A fund with a 1.0% expense ratio costs $100 per year on the same $10,000.

Index funds and ETFs typically have the lowest expense ratios, often between 0.03% and 0.20%. Actively managed funds—where a manager tries to beat the market by picking stocks—usually charge 0.50% to 1.50% or higher. Over decades, even small differences in expense ratios compound significantly. A 0.05% fund versus a 1.0% fund can mean tens of thousands of dollars in difference by retirement.

You can see a fund's expense ratio on the brokerage's website before you buy. Search for the fund, click on it, and look for "Expense Ratio" or "Fees" in the fund details. Choosing lower-cost funds is one of the most direct ways to improve your long-term returns.

Rebalancing and changing your investments over time

Once you have built a portfolio, you do not need to do anything unless you want to. Your investments will grow or shrink based on market performance. Over time, your original mix might drift—if stocks perform better than bonds, your portfolio might shift from 60% stocks to 70% stocks. Rebalancing means selling some of the winners and buying more of the losers to return to your original mix.

You can rebalance once a year, every few years, or not at all. Some people rebalance when one category drifts more than 5% from its target. Others rebalance whenever they add new money to the account. Target-date funds rebalance automatically, so if you choose one, you do not need to think about this.

As you age, you may want to shift toward more conservative investments—more bonds, fewer stocks. You can do this gradually by directing new contributions toward bonds, or you can sell stocks and buy bonds all at once. Neither approach triggers taxes inside a Roth IRA, so the timing is up to you.

Frequently Asked Questions

Can I invest in cryptocurrency or alternative investments inside a Roth IRA?

Most brokerages do not offer cryptocurrency directly inside a Roth IRA, though some allow it through special account types. Bitcoin and other cryptocurrencies are extremely volatile and carry significant risk. If you want crypto exposure, check whether your brokerage offers it and understand the fees—some charge much higher rates for alternative investments than for stocks and funds.

What happens if I invest money and the market goes down?

Your account balance will decrease, but you have not lost the money permanently unless you sell. Market downturns are normal and happen regularly. If you are decades away from retirement, downturns are actually opportunities to buy investments at lower prices. Staying invested through downturns and continuing to add money is how most people build wealth over time.

Can I move my money between investments without paying taxes?

Yes. Selling one investment and buying another inside your Roth IRA does not trigger any taxes and does not count as a withdrawal. You can change your mind as many times as you want without penalty. The tax benefits apply to the entire account, regardless of what you hold inside it.

Do I have to invest the money, or can I leave it in cash?

You can leave your Roth IRA balance in cash if you want, though cash typically earns very little interest. Most people invest at least some of their balance to take advantage of long-term growth. You can also split the difference—keep some in cash for emergencies and invest the rest.

What is the difference between a mutual fund and an ETF?

Both are baskets of stocks or bonds. Mutual funds execute once per day at the market close; ETFs trade throughout the day like stocks. ETFs typically have lower expense ratios and are more tax-efficient. For a Roth IRA, the tax efficiency of ETFs matters less because the account is already tax-advantaged, so either choice works well.