BRIDGEPORT, W.Va (WDTV)- Question: I have an IRA investment at the bank and a mutual fund. I do not understand the difference, please help.
Answer (John Halterman, Beacon Wealth Management): "The first thing you have to understand, very confusing, is that an IRA is not actually an investment. An IRA is the tax type of an investment. Whether you have an IRA, a Roth IRA, 401(k), all those things mean that it represents how you are taxed. Whether it is pre-tax, after-tax, or even tax-free down the road. That's the first thing you have to understand."
Question: What about the investment itself?
Answer (John Halterman, Beacon Wealth Management): "When it comes to the investment itself, let's say you have an IRA with the bank. More than likely that IRA is either in a CD, a savings account, or a fixed annuity. That is the actual investment itself. So you have to separate the tax title from the actual investment.
You mentioned you also have a mutual fun. A mutual fund is completely different from those types of investments because those types of investments are lower risk investments. Where as a mutual fund, you could have various types of risk. It all depends on the objective and what it is actually invested in.
So as an example, let's say the S&P 500, that represents the 500 largest companies in the United States, divided by 10 sectors, the 50 largest of the sectors. It's going to primarily invest in large-cap stocks. If you have a mutual fund and the S&P 500 then you are going to be well diversified. You're having a professional money manager manage the money and also that money is going to be pulled together with other investors with the same exact objective."