Don't lose your IRA moment

Don't lose your IRA moment

Do not let good intentions get away from you this year.

If you are like most Americans, you know you should save more, but time gets away and the deed doesn't get done. Now that the tax deadline has passed, open the IRA you have been promising yourself, or fund an old IRA that needs to be plumped.

Don't let confusion about how to invest stop you. If you can't decide on investments, go to a mutual fund company or discount broker such as Charles Schwab, Scottrade or Fidelity and open that IRA or Roth IRA.

Just don't procrastinate for months or years. If, for example, you are 30, put $1,500 into an IRA now, and just let it sit there earning about a half of a percent in interest until you retire, you will end up with about $1,800. If you invest it in a stock mutual fund and are fortunate enough to earn what stocks have averaged in the past 85 years, you could end up with about $51,000. If you are nervous about going all-in on stocks and want to hedge your bets with a "balanced fund" that combines stocks and bonds, you might end up with about $26,000 if it behaves like the historical average in such funds.

If you'd managed to put the full amount allowed in your IRA for the 2011 tax year — $5,000 — it would become about $6,000 if it is left in the money market fund you used from the start. In a balanced fund it may turn into $86,000 and in a stock fund about $170,000. Of course, none of those are guarantees, but you get the point: Doing nothing won't move the needle. So here are some ideas to get you started:

A SIMPLE OPTION: If you realize that there are great years and horrible years in the stock market and won't be spooked by the bad times, you have the stomach for investing in the stock market. You could invest your entire IRA contribution in one simple stock fund that would mimic the full U.S. stock market and give you a tiny investment in more than 5,000 stocks — from Apple to Coach, Ford to Clorox, to name a few.

You could do this all through what's called a "total stock market index fund," and you could buy it cheaply through the Vanguard mutual fund company. You identify it with the symbol VTSMX. You could also buy the same fund through a broker in a form called an "exchange traded fund," or ETF. You would identify the Vanguard Total Stock Market ETF with the symbol VTI.

Or maybe you feel too confined by simply investing in the total U.S. stock market, and you would like to own stocks from the entire world. Then consider iShares MSCI All Country World Index.

INSULATE DIVIDENDS: Stocks that pay dividends can sometimes provide some insulation against stock market downturns. It's not complete insulation, so you can still lose money if the market falls hard, but dividends provide cushion.

You could consider the Vanguard Dividend Appreciation exchange traded fund, or if you would feel better having the largest blue-chip stocks of the U.S. stock market, you could try iShares Dow Jones Select Dividend. If you would like to have a professional picking stocks from throughout the world that pay dividends, consider Tweedy, Browne Worldwide High Dividend Yield.

MIX AND MATCH: Mixing stocks and bonds gives you a chance to grow your money over many years and provides a stronger cushion than dividends to insulate your money when the stock market turns nasty. Even with such "balanced" funds, you will lose money temporarily in sharp downturns. For example, in 2008 as the stock market declined 37 percent, balanced funds lost about 22 percent. Historically, the mixture of stocks and bonds has averaged an 8 percent return annually after all the ups and downs for the past 85 years.

If you want a professional fund manager to decide how to put your money into a combination of stocks and bonds, consider Vanguard Wellesley (VWINX) or T. Rowe Price Balanced (RPBAX). Some mutual funds allow you even greater latitude beyond stocks and bonds with investments — maybe investing in currencies, commodities or "shorting," which makes money on losing stocks. Morningstar director of fund research Russel Kinnel recommends FPA Crescent (FPACX) and PIMCO All Asset All Authority (PAUDX).

Gail MarksJarvis is a personal finance columnist for the Chicago Tribune and author of "Saving for Retirement Without Living Like a Pauper or Winning the Lottery."

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