From a legal perspective a retirement account can include: Stocks, Bonds, Mutual Funds, Annuities, Limited Partnerships, & U.S. Minted Coins. It can not include: Margin Accounts, Short Sales, Tangibles/Collectibles/Art, Speculative Options Trading, Term Life Insurance, Rare Coins, & Real Estate.
From a tax perspective 2 important points should be remembered:
- A retirement account grows either tax deferred, such as in a traditional IRA, or tax free, such as in a Roth IRA.
- Investment losses can not be deducted in a retirement account. A loss can be deducted in a non-retirement account.
Since it grows without a concern on paying taxes it is important invest in taxable investments. A tax free bond, such as a municipal bond, would not be appropriate. The focus has to be on growing as fast as possible.
Since investment losses are not deductible in a retirement account, you need to be concerned about the amount of risk. A higher risk investment, such as an individual stock, would be more appropriate in a non-retirement account as you can deduct any potential loss. A mutual fund of stocks would be more appropriate in a retirement account. Even though it is possible for a mutual fund to go down an individual stock can go down even further due to a lack of diversification.
Would I invest in bonds or a bond mutual fund within a retirement account? Only when the timeframe is less than 8 years and investor preference. Personally, I doubt if I will ever own a bond or a bond fund because of my personal preference.
Happy Investing!!!
