Supplementing and diversifying with an IRA

January 29, 2024
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Diversification in retirement planning is key when it comes to helping secure your financial future. While contributing pre-tax contributions through your company’s retirement plan is a wise money move, it’s a power play to supplement those dollars with other investment options outside of your 401(k) or 403(b).

An important strategy for mitigating risk and maximizing investment returns, here are some benefits of diversification:

  • Reduced risk. By investing in a variety of assets, the overall risk of the portfolio can be reduced since the poor performance of one asset will not necessarily result in an overall loss for the portfolio.
  • Increased returns. Diversification can also lead to increased returns as investors are more likely to capture the returns of top-performing assets.
  • Opportunity for growth. Investing in a variety of assets provides the opportunity for growth in different areas of the market, such as technology or emerging markets.
  • Flexibility. Diversification allows for more flexibility in terms of reallocating assets if market conditions change.

Again, it’s important to keep contributing to an employer-sponsored retirement plan, such as a 401(k) or 403(b), but it’s also wise to consider setting up and funding a separate individual retirement account, or IRA, within your Online Investing account. By doing so, you can diversify your retirement savings and potentially increase your overall returns. Additionally, having a separate IRA can provide more flexibility in terms of investment choices and withdrawal options.

Overall, the diversification offered through an IRA is an important strategy for building a portfolio that balances risk and reward. There are several ways to diversify your investment portfolio as you set up your IRA:

  • Asset allocation. This involves spreading your investments across different asset classes such as stocks, bonds, and real estate. The idea is that each asset class performs differently under different market conditions, so by investing in a variety of asset classes, you are potentially reducing your overall risk.
  • Sector allocation. Within each asset class, there are many individual sectors. For example, within the stock market, there are sectors like technology, healthcare, and finance. By investing in a variety of sectors, you are diversifying your portfolio and reducing risk.
  • Geography. You can also diversify by investing in different geographic areas. This can be done by investing in stocks or mutual funds that focus on a particular region (e.g., Asia or Europe) or by investing in international mutual funds.
  • Dollar-cost averaging. Rather than investing a lump sum all at once, you can invest regularly over time. This can help reduce the risk of investing when the market is at a high point.
  • Alternative investments. You can also diversify your portfolio by investing in alternative assets like real estate, commodities, or even cryptocurrency.

Luckily, the mutual funds offered through our Online Investing IRAs give you the option of doing all those things mentioned above by just choosing the fund or funds that fit your personal financial situation and goals.

It’s important to note that diversification does not eliminate the risk of investment losses, but it can help mitigate risk and increase the chances of achieving long-term investment goals. With our easy-to-use Online Investing platform, setting up your new IRA is quick and convenient. Start diversifying your retirement holdings today and reach out to a member of our team with any questions!

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