How Much Interest Is Earned in an IRA?
- Conservative investors are risk averse. Aggressive investors are more accepting of strategic risk. Conservative investments offer lower rates of return but often have some type of guarantee. Aggressive investments have wide fluctuations often with inconsistent annual returns and no guarantees. When it comes to different investments in IRA accounts, investors with more time to save toward retirement can afford more risk in portfolios.
- Conservative investments include bank certificates of deposit, savings accounts, treasury bonds or fixed annuities. Certificates of deposit are insured by the Federal Deposit Insurance Corporation up to $250,000, as are bank savings accounts. Treasury bonds are backed by the full faith of the U.S. Treasury Department. Fixed annuities are guaranteed by the insurance companies providing them. These types of investments expect anywhere from 1 to 5 percent depending on Federal Reserve basis rates. Inflationary periods may have higher returns.
- Moderate investments are large capital stocks, corporate bonds and diversified portfolios mixing conservative investments with moderate and aggressive portfolios. A moderate portfolio expects 5 to 12 percent a year as a return. Realistically, a moderate portfolio expects an average of 8 percent per year. However, these portfolios are subject to fluctuations. Some years yield negative returns while others get higher returns.
- Aggressive investments are any investments seeking returns above 12 percent per year. These portfolios are heavily weighted with small capital stocks --- newer companies trying to establish a market --- as well as international securities. However, investors might still maintain other moderate or conservative investments. Aggressive portfolios expect wide fluctuations in returns, possibly with many years of poor returns. Investors bear down markets, hoping the "up years" more than make up for low or negative returns.
