Retirement funds: Investment options for retirement

What's the difference between a retirement account and your retirement investment?

When you invest, you need to choose both the account type and the investments you want to hold in the account.

When you choose an account, you're deciding how you want the money to be treated for tax purposes. Each type of account has its unique features and benefits. One popular retirement account type is an IRA which offers several tax benefits to help you save more for retirement. However, these accounts also come with certain rules that limit how much money you can contribute each year and the type of tax benefits you receive.

You might also have a 401(k) or 403(b) plan through an employer. If you have investments in an employer-sponsored retirement plan but no longer work for the company that offered it, you might choose to keep your money in the plan if it has low fees or offers a certain investment you'd like to keep. But if you want the convenience of having all your investments in one place, more flexibility, or potential savings on fees, you might consider rolling over your 401(k) into an IRA.

Taxable accounts are different from retirement accounts and have different rules—mostly about how the money you earn in the account is taxed.

It's important to understand that an account isn't what you're actually buying—it's just a place to hold your investments. There are many types of investments to consider, like individual stocks, CDs (certificates of deposit), and bonds. There are also thousands of mutual funds, ETFs (exchange-traded funds), which include index funds and actively managed funds.

While there are thousands of investment options, choosing the right ones for you doesn't have to be difficult. In fact, picking your investments can be as simple as figuring out when you think you might retire.

Determining the right mix for your retirement portfolio

Before choosing specific investments, you'll want to consider your asset mix—the ideal mix of stocks, bonds, and cash you should hold in your portfolio. Your asset mix should align with your situation, so think about when you'll need the money and how much risk you're willing and able to take.

Though it's best to focus on the overall progress toward your goal, you should also consider how you feel about market fluctuations. Some people can easily ignore the day-to-day changes in their account balance that sometimes come with more aggressive investments. Others might be more concerned with market ups and downs and aren't willing to take on as much risk.  

Your time horizon is another important factor when choosing investments. If retirement is decades away and time is on your side, you may consider investments with more risk to try and maximize growth. However, if you're getting closer to retirement, then you might want to choose lower-risk investments (while still earning more than the rate of inflation). As you approach the time when you'll need to access the money, it's a good idea to revisit your asset mix and adjust it to meet your goals as your time horizon changes. The most important thing is to choose a risk level that you're comfortable with.