Is there any significant risk in a mutual fund Roth IRA?
I am looking into setting up a T Rowe Price Roth IRA with strictly mutual funds. Obviously, there is inherent risk in any kind of stock investment, mutual or otherwise, but is there any chance I could LOSE money in this type of account? I don’t want my retirement savings to be in a volatile investment account…I know mutual funds are less risky than individual stocks but what if the mutual funds perform terribly?
Yes, you know loosely (all) the money, independently of where you invest it. Each fund can accomplish terribly. The acceptance is that during a long period, things from average enough that you your funds on mutuality money earns you. But becomes with the kind and economy in these days? ….
Knowing your history can allay many of your fears. In the last 100+ years, stocks as a whole have grown and AVERAGE of around 9-10% per year. That is better than most other types of investments. The tradeoff for this return is volatility in the short term. This is why stocks (and stock funds) should only be used as LONG-TERM investments (5 years or more). Historically, stocks have lost money about 1 out of every 3 years, so don’t worry when (not if) the value of your portfolio decreases from time to time.
I would highly recommend going down to your local library or book store and picking up one or two books on the basics of investing. It’s really not all that complicated, and this is VERY important stuff to know.
If you’re worried about the market tanking in the next 6-12 months, you might want to employ a strategy called dollar-cost averaging. Your investing books can give you the details on how this works, but basically you are dividing up your investment into 6-12 equal portions, and investing just that smaller amount every month until it’s all invested. That way, if the market does go down, you can take advantage by buying more shares at a lower price.
T. Rowe Price is an excellent fund company – I’ve been investing with them for years. They have a great selection of highly-rated funds, low fees, and outstanding customer service (including a great website).
I hope that helps. Good luck!