Following is another in a series of columns on Individual Retirement Accounts:
In previous weeks we mentioned U.S. Individual Retirement Bonds, insurance annuities and savings institution certificates as possible vehicles for your IRA. What's left?
Regulated investment companies expect--or at least hope--that mutual funds will be one of the largest groups of beneficiaries from the new IRA rules.
Mutual fund sponsors stress two principal advantages to the use of their products for your IRA: diversity and flexibility.
They're certainly right about diversity; there are literally hundreds of mutual funds, in a wide variety of types and a wide range of investment objectives. There are money market funds, bond funds, growth stock funds, income stock funds and hybrids with varied portfolios.
There are funds that specialize in things like Government National Mortgage Association mortgages, government securities, energy stocks, gold stocks, high technology industries, commodity futures--in fact, you can probably find a mutual fund that fits about any kind of investment you can think of.
This is not an unmixed blessing. It makes it much more difficult for you to decide where to open your account. If you want to do some research, take a look at "Weisenberger Investment Companies" (available at many libraries), containing information on investment objectives, results over various periods of time, charges and fees for almost every mutual fund.
Some general interest financial magazines like Forbes, Changing Times and Money periodically offer ratings by major categories of the funds that have been doing well. Past performance does not guarantee future results, but at least you can get an idea of which funds have performed best in the past.
"Flexibility" depends on which fund you select. Of course you can move your IRA money from one investment to another, without limitations if you have the money transferred directly between trustees.
But you can get "in-house" flexibility if you select a "family" of funds--a group of funds with different investment objectives and philosophies but all managed by a single group sponsor.
What does this do for you? Well, perhaps you decide to start your IRA in a common stock growth fund; but as you get closer to retirement age you are looking for greater stability and security.
By letter--and in some cases by a simple phone call--you can instruct the trustee to shift all or part of your IRA money to a money market fund or bond fund in the same family of funds.
If you're a knowledgeable investor, you can use the fund family concept in a more sophisticated way. You may start with all your money in a money market fund. Then if you expect interest rates to drop, you can move some money to a bond fund. If a stock market rise appears imminent, shift to a common stock fund; then go back to the money market fund if you turn bearish.
In fact, there are investment advisory services that specialize in providing "market timing" services. That is, they follow market trends, usually by charting or other technical analysis methods, and send you "signals" on when to move into or out of the various kinds of investments.
Of course, flexibility--like diversity--can create problems. By increasing your options it increases the need for decisions. If you don't want to get involved in frequent decision-making, stick to the savings institutions or insurance annuities, or pick a conservative general-purpose fund with a good history, then stay with it.
Both load and no-load funds offer IRA programs. A no-load fund has no commission charge, so all the money you deposit goes to work for you. Conversely, a load fund charges a sales commission--usually from 5 to 8 1/2 percent--which comes off the top.
(The load or sales charge should not be the major determining factor in selecting a fund. Investment philosophy and historical results may indicate that a load fund fits into your plans better than a no-load. But of course if you find two funds that are equally suitable, the no-load is the logical choice.)
Both load and no-load funds charge an annual management fee, usually around half of one percent of total assets. Both kinds of funds impose a small service fee--perhaps $2 to $5 a year for each IRA account. And there is generally an administrative charge of $5 for each transfer of funds from one account to another.