The most commonly held investments in individual retirement accounts include savings accounts, U.S. savings bonds, certificates of deposit, money market instruments and funds, index funds, mutual funds and exchange traded funds, bonds, and stocks.

Savings accounts pay, as of 2019, a very small amount of interest. Most, but not all, savings accounts are protected by the FDIC. This is the safest and most liquid investment next to cash.

U.S. savings bonds are also very safe. They are offered directly from the U.S. Treasury, but they are not FDIC insured, because they are owned directly and backed by the full financial strength of the U.S. government.

CDs are very safe and, like savings accounts, are protected by the FDIC. They are usually locked-in for an amount of time ranging from three months to several years. They may pay interest or be linked to stock market returns.

Next to cash, U.S. Treasury bills are the world standard for liquidity and safety. Their biggest drawback for individuals is their high cost to purchase individually. Money market funds and accounts are also very safe; some, but not all, are protected by the FDIC.

Mutual funds pool investors' capital and hire professional managers to invest in stocks and bonds. ETFs are a type of mutual fund whose units trade on a stock exchange. Index funds are a type of mutual fund which aim to replicate the performance of stock indices such as the Standard & Poor's 500. They are risky but safer than individual stocks or bonds. Mutual fund investments are not covered by the FDIC.

Bonds are a debt obligation that mature on a certain date. They also pay interest in the form of coupon payments at a stipulated rate. Agencies such as Moody's and Standard & Poor's provide ratings on bonds. Bonds are traded worldwide, and it is possible to lose money in them. Bonds are not covered by the FDIC.

Stocks are risky and require a lot of research. Stocks, however, may offer the most potential reward, but they are not covered by the FDIC.

Advisor Insight

Dean St. Marie, CFP®, AAMS
St. Marie Financial Advisors, LLC, Brevard, NC

The most common IRA investments tend to be mutual funds, which are popular for the offer broad diversification benefits they offer. For example, buying a mutual fund invested in Brazilian stocks would allow you to own just about every listed company in Brazil, which would be difficult to do otherwise.

Another common investment is individual stocks, which offer greater returns than mutual funds if the investment does well, but at the expense of higher risks and lower diversification. Individual stocks usually make more sense as an IRA investment when you have a larger account and can buy shares in many different companies.

Other investment choices can include rental real estate, precious metals, and private placements, but these are typically for more sophisticated investors.