For many people, it's torture to talk about retirement accounts, determine which investments are right, and rebalance a portfolio every few months or years. Saving for the future can be especially daunting for workers who don't have a 401(k) or other retirement plan through an employer.
For those with individual retirement arrangements -- often called individual retirement accounts, or IRAs -- the maximum yearly contribution is $5,500 (or $6,500 starting at age 50). The IRS sets the amount, which increases every few years. Investors must decide how they want to allocate the money among stocks, bonds, mutual funds, and other types of investments. The options may vary depending on the financial institution where the IRA is held.
How do you choose investments responsibly without also investing a lot of time? Here are four approaches for investors who prefer to be hands-off but want to be sure their retirement savings are managed well.
Hire a financial planner.Instead of taking care of an account on your own, hire a financial planner to assess the situation, consider your goals and how much risk is comfortable for you, and invest accordingly.
Before hiring an adviser, ask about credentials and compensation. Certification as a certified financial planner (look for the initials "CFP") or chartered financial consultant (look for "ChFC") shows that the planner has passed rigorous testing and stays up to date with continuing education courses.
Financial planners make money in a few different ways: by earning commissions on the sale of certain financial products to clients; at a fixed rate or depending on the amount of assets managed (known as fee-only); or a combination of the two (fee-based). Some people prefer to work with fee-only advisers, because they don't get commissions for pushing specific investment options. An investor can also ask a financial planner to sign a fiduciary agreement, which means the planner is legally bound to put the client's interest first.
Hire a robot.Robo-advisers such as Betterment, Wealthfront, and Charles Schwab's Intelligent Portfolio have been attracting investors with low fees and a hands-off approach. These services use computer programs and simple questionnaires to determine where to invest money and automatically rebalance the portfolio.
Acknowledging his bias, Chad Smith, a certified financial planner in North Carolina, says robo-advisers have a major downside: They cannot calm fears or panic during a market crash. A financial planner can talk investors through what is happening and what steps to take, encouraging investors not to pull money out when the market is down and reassuring them that staying the course can significantly increase returns in the long run.