How to Invest Money in Your IRA or 401k Retirement Account

Money Girl answers listener questions and explains how to invest money in your retirement account, so you take the right amount of risk and reach your financial goals.

Laura Adams, MBA
8-minute read
Episode #399

How to Invest Money in Your IRA or 401k Retirement AccountOnce you open up a retirement account at work or on your own, the next step is to pick your investments from a menu of options. For many people, this is the toughest part because the menu might as well be written in Greek!

In this episode I’ll answer two questions from Money Girl podcast listeners and explain exactly how to invest money in your retirement account. You’ll know which investments to pick so you feel comfortable and reach your financial goals.

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It’s a common dilemma to feel confused about how to invest money in a retirement account. Maybe you can relate to Brianna C., who asks:

I'm interested in enrolling in the 401(k) at work but am very confused about the different types of available funds. How do I know what's right for me?

Or Mina A., who says:

I’m a big fan of your podcast and decided to take your advice and open a Roth IRA. But now I’m not sure how to invest so I take as little risk as possible. What’s the next step for a beginning investor?

I’m glad these podcast listeners are being thoughtful because the retirement investments you choose are very important. They determine the rate at which your account can grow, the amount you’re likely to accumulate for retirement, and how much income you’ll be able to withdraw in the future.

Your investment options always depend on your retirement plan provider at work or the company where you opened a traditional or Roth IRA. If your company offers automatic 401k or 403b enrollment, there’s typically a default investment that’s preselected for you. You can stick with it or move your money into other plan options.

See also: 7 Pros and Cons of Investing in a 401k Retirement Plan at Work

What Is Investment Risk Tolerance?

In order to know what investments you should buy, first consider your risk tolerance. This is how you feel about risk and react emotionally when your investments decline in value.

If temporary investment losses (or even just the thought of losses, if you’ve never invested before) make you extremely anxious or cause you to lay awake with worry all night, you’re probably somewhat risk-averse. That means you don’t like taking risk even if you’re missing out on making more money.

On the other hand, if you stay cool as a cucumber and have confidence that your declining investments will bounce back before you need to spend the money, you’re probably suited to holding more risky investments.

Here’s the rub: If you invest very conservatively, you aren’t likely to lose money, but you won’t earn much either. On the other hand, if you choose risky investments, you can make a high return, but you may also lose money—especially in the short term. So most of us fall somewhere in the middle of that risk scale.

See also: 8 Tips to Invest Without Too Much Risk


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.