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Building the Best IRA Portfolio For Your Retirement - Part I

February 19, 2012 | Comments: 0 | Views: 131

While being middle-aged, or older, in good health, and a wage earner; take advantage of the great opportunity to invest in an Individual Retirement Account (IRA) which, for all practical purposes, is a savings account.

If you are under 50 years of age at the end of 2012: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2012. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).

If you are 50 years of age or older before the end of 2012: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2012. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified AGI. You can contribute to your IRA until reaching the age of 70 1/2.

Now that ground rules have been established, your IRA portfolio can include Certificate of Deposits (CD's), Mutual Funds, Annuities, etc.; however, this article will focus only on mutual funds. The IRA portfolio planning is in totally your hands. You make the decision of how the percentage of IRA assets are made. Example: 40% stock funds, 20% bond funds, 25% CD's, and 15% annuities. If you were 50 years of age, you could make a $6,000 IRA contribution that included a mixture of these type of investments or only one investment; it is your decision!

Mutual funds are long-term tools for building assets in IRAs and should, therefore, be timed in years not months or weeks. A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

There are two kinds of mutual funds and they tend to go in opposite direction to each other when the stock market goes up or goes down..

Stock Mutual Funds:

1) A Growth fund which focuses on capital appreciation of companies that have sizable earnings or revenue growth and avoid companies that pay out dividends.

2) A Value fund invests in companies that the manager feels are currently undervalued in price and believes the value will eventually increase. The focus is primarily safety over growth.

3) Blend funds whose focal point is portfolio diversification of combined stocks, bonds and cash. Usually they are less risky.

Bond Mutual Funds: 1) Taxable bond funds which include Corporate Debt, GNMA, Multi-Sector, etc. 2) Municipal bond funds which are tax exempt. Either type has 80% or more of their assets invested in bonds.

Now that you are armed with information needed to know, you have to determine what are your future objectives?

Aggressive: A method of portfolio management and asset allocation that attempts to achieve maximum return. An aggressive investment strategy attempts to grow an investment at an above-average rate compared to its industry or the overall market, but usually take on additional risk.

Conservative: An investment strategy that aims to grow invested capital over the long term. This strategy focuses on minimizing risk by making long-term investments in companies that show consistent growth over time. Conservative growth portfolios feature low asset turnover, or a high percentage of fixed assets on their balance sheets, and should employ a buy-and-hold investment philosophy.

Moderate: Income coming from interest payments, dividends, capital gains collected upon the sale of a security or other assets, and any other profits made through an investment.

Husband, father and grandfather of 5 beautiful grandchildren. Air Force veteran, founder of Mutual Interest Data Service, Ltd., former trade magazines Group Circulation Manager and retired self-employed Business Administration entrepreneur. Daily management of the Website keeps me busy; my 'forte' being investment research on the Internet. Enjoy traveling, reading, writing investment articles, and painting fine art on occasion.

Source: EzineArticles
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