You decide how your IRA money is invested — the bank or brokerage just holds the account

An IRA is a container for retirement savings with tax advantages. The financial institution that holds your IRA — a bank, brokerage, or credit union — does not automatically invest your money anywhere. You choose what goes inside it. You can buy stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), or keep cash sitting there. The institution's job is to hold the account and report it to the IRS; your job is to decide what investments go into it.

This matters because two people with IRAs at the same bank can have completely different investments. One might own a single target-date fund that automatically shifts from stocks to bonds as retirement approaches. Another might own 20 individual stocks they picked themselves. A third might keep the money in a savings account earning interest. The account type — Traditional IRA, Roth IRA, SEP IRA — determines the tax treatment, but not the investments inside.

Key Takeaways

  • Your IRA custodian (bank, brokerage, or credit union) holds the account but does not choose your investments unless you ask them to.
  • You can invest in stocks, bonds, mutual funds, ETFs, CDs, or cash within an IRA, depending on what the custodian offers.
  • Target-date funds and robo-advisors are common choices for people who want a hands-off approach; individual stock picking requires more active management.
  • Fees vary widely by custodian and investment type, so comparing costs before opening an account can save thousands over decades.
  • Some custodians restrict what you can buy; others offer a wider range, so check what investment options are available before you open.

Common investment choices within an IRA

Mutual funds pool money from many investors to buy a basket of stocks or bonds. A fund manager picks the holdings, or the fund tracks an index like the S&P 500. You own a share of the whole fund, not individual securities. Mutual funds are easy to understand and require no stock-picking skill, but they charge fees (called expense ratios) that range from under 0.05% per year for index funds to 1% or more for actively managed funds.

Exchange-traded funds (ETFs) work similarly to mutual funds — they hold a basket of securities — but trade on an exchange like a stock. You can buy or sell them during market hours at a price that changes throughout the day. ETFs often have lower expense ratios than mutual funds and can be more tax-efficient inside a Roth IRA. Many people use ETFs as their core IRA holdings because the costs are transparent and low.

Individual stocks mean you own shares in specific companies. You pick which ones, research them, and decide when to buy and sell. This approach requires time and knowledge but gives you full control. Some custodians charge per-trade fees; others offer commission-free stock trading. Individual stocks inside an IRA grow tax-free (in a Roth) or tax-deferred (in a Traditional IRA), which is a major advantage over holding them in a regular brokerage account.

Bonds and bond funds are loans you make to governments or companies. They pay interest and return your principal at maturity. Bond funds hold many bonds and are simpler than buying individual bonds. Bonds are lower-risk than stocks but typically return less over long periods. Many people hold a mix of stocks and bonds in an IRA to balance growth and stability.

Certificates of deposit (CDs) are savings products issued by banks. You deposit money for a set term (3 months to 5 years) and earn a fixed interest rate. CDs are very safe — FDIC-insured up to $250,000 — but returns are modest. Some people use CDs in an IRA as a stable core holding, especially as they near retirement.

Cash and money market funds sit in your IRA earning little to no interest. This is useful as a temporary holding place while you decide what to buy, or as a buffer if you need to withdraw money quickly. Keeping large amounts in cash long-term means you miss out on growth, so most people use it sparingly.

Hands-off approaches: target-date funds and robo-advisors

If you do not want to pick investments yourself, target-date funds are a common choice. You pick a fund based on your expected retirement year — for example, a "2050 Target Date Fund" if you plan to retire around 2050. The fund automatically holds a mix of stocks and bonds that shifts over time, becoming more conservative as your target date approaches. You buy one fund and do nothing else. Expense ratios typically range from 0.08% to 0.20% per year.

Robo-advisors are automated investment services offered by some custodians and independent firms. You answer questions about your age, risk tolerance, and goals, and the robo-advisor builds and manages a portfolio for you. It rebalances automatically and may tax-loss harvest (sell losing investments to offset gains). Robo-advisor fees usually range from 0.25% to 0.50% per year, plus the underlying fund expenses. This approach requires almost no effort from you but costs more than simply buying a target-date fund.

Both approaches work well for people who want to invest for retirement without spending time on it. The trade-off is that you pay slightly more in fees than you would managing a simple portfolio yourself, but you also avoid the risk of making emotional decisions during market downturns.

How fees affect your long-term returns

Fees matter enormously over decades. A 1% annual fee on a $50,000 IRA compounds into tens of thousands of dollars in lost growth by retirement. A 0.10% fee on the same account costs far less. Compare expense ratios, trading commissions, and account maintenance fees before you open an IRA.

Many large brokerages (Fidelity, Vanguard, Charles Schwab, E-Trade) offer commission-free stock and ETF trading and have low-cost index funds. Some charge annual account fees; others do not. Credit unions and smaller banks may have higher fees or fewer investment options. Reading the fee schedule on a custodian's website takes 10 minutes and can reveal hundreds of dollars in annual savings.

Tax efficiency also affects returns. In a Roth IRA, all growth is tax-free, so you can trade frequently without worrying about capital gains taxes. In a Traditional IRA, you pay taxes on withdrawals but not on the growth itself. Some people use this to their advantage by holding high-growth stocks in a Roth and bonds in a Traditional IRA, since bonds generate taxable income.

What you cannot invest in within an IRA

IRAs have strict rules about what you can hold. You cannot buy collectibles (art, wine, stamps), real estate, or most alternative investments. You cannot borrow money to buy securities inside an IRA (no margin). You cannot hold life insurance policies. These rules exist to prevent tax abuse and keep IRAs focused on retirement savings.

Some custodians also restrict your choices beyond what the IRS requires. A bank might only let you buy CDs and mutual funds, not individual stocks. A brokerage might not offer certain ETFs. Before opening an account, check what the custodian actually allows you to buy. If you want broad investment freedom, choose a large brokerage with a wide range of offerings.

Changing your investments over time

You can change what is inside your IRA whenever you want. You can sell one mutual fund and buy another, or shift from stocks to bonds. There are no taxes or penalties for trading within the account — that is one of the main advantages of an IRA. You do not owe capital gains tax on profits you make inside the account, whether it is a Traditional or Roth IRA.

Many people rebalance their IRA once or twice a year, selling investments that have grown too large and buying ones that have fallen behind. Others use a "set it and forget it" approach with a target-date fund and never touch it. Both strategies work; the key is choosing an approach you can stick with for decades without panic-selling during downturns.

Frequently Asked Questions

Can I move my IRA to a different custodian if I do not like the investment options?

Yes. You can transfer your IRA to another bank or brokerage without taxes or penalties. The process is called a trustee-to-trustee transfer and takes one to two weeks. You fill out a form at the new custodian, and they handle moving the money. This is different from a rollover, where you withdraw the money yourself and have 60 days to deposit it elsewhere.

What happens if I pick bad investments and lose money in my IRA?

The money stays in the IRA, and you cannot deduct the loss from your taxes (unlike losses in a regular brokerage account). You can sell the losing investment and buy something else, but you cannot recover the loss. This is why many people choose diversified funds instead of individual stocks — it reduces the risk of one bad pick hurting your retirement savings.

Do I have to invest my IRA money, or can I leave it in cash?

You can leave it in cash, but you will earn almost no interest. Most cash accounts in IRAs earn 0.01% to 0.05% per year, which does not keep up with inflation. Leaving money in cash is fine as a temporary holding place, but over decades it means missing out on growth. Most people invest at least part of their IRA in stocks or bonds.

How often should I check on my IRA investments?

If you own a target-date fund or robo-advisor portfolio, checking once or twice a year is enough. If you own individual stocks, you might check more often, but frequent checking can lead to emotional decisions. Most experts recommend reviewing your IRA annually to make sure it still matches your goals and risk tolerance, then leaving it alone.

Can I borrow money from my IRA to invest in something else?

No. IRAs do not allow loans or margin accounts. You can withdraw money (subject to age and tax rules), but you cannot borrow against it. If you need cash, you have to withdraw it, which may trigger taxes and penalties depending on your age and IRA type.