The Big Bang in last year's securities markets is turning the thoughts of more IRA investors toward stocks and bonds. A beginner still might want a bank or S&L certificate of deposit for the safety it offers to smaller savers. But if your IRA has grown to the $8,000 range, you might want to experiment with another type of investment.
The argument for: Over many years, stocks in particular are highly likely to outperform certificates of deposit. Bond-holding mutual funds also will exceed CDs, if interest rates continue to fall.
The argument against: IRAs should be treated as funds you can count on, 100 percent. Stocks are fine for money you're willing to put at risk, but this annual $2,000 isn't for risking.
If risk is your style, try a broadly diversified growth-stock mutual fund. But choose one that charges no sales commission.
At first, an 8.5 percent sales charge may not seem very large -- $170 on a $2,000 investment. But over time, it adds up to very big money indeed.
Dow Jones-Irwin's excellent paperback, "Using IRAs," compared two accounts receiving $2,000 annually and compounding at 10 percent.
After 20 years, the one without sales commissions is worth $10,710 more; after 40 years, it's worth $82,765 more.
Another choice is a self-directed IRA that lets you move your money into any investment you want. A brokerage-house IRA, through which you buy securities and mutual funds, will of course cost you sales commissions -- although they're much lower than the 8.5 percent charged by "load" mutual funds. You'll pay even less by buying through a discount broker.
You need not put all your money into securities, even if you buy through a broker. Many also offer certificates of deposit, which they'll place in some of the nation's highest-paying federally insured institutions.
A growing number of banks also offer self-directed accounts, usually using a discount brokerage-house affiliate.
Most self-directed accounts charge set-up and maintenance fees as well as sales commissions.
These costs weigh especially hard on accounts invested heavily in CDs because they reduce your effective yield. So if CDs are your principal choice, skip the self-directed account and buy them directly from a no-fee bank or S&L.
Some institutions offer self-directed IRA accounts with no set-up or annual administration fees. Two such: Security Pacific Brokers, a division of Los Angeles' Security Pacific Bank, and the discount broker, Charles Schwab.
Zero-coupon Treasury bonds or certificates of deposit are right for investors who think interest rates never again will shoot up wildly.
With a zero, you put down a fraction of the bond's face value; each year's interest payment builds up the worth of the bond until, at maturity, its full face value finally is reached. With zeros, you lock in today's interest rates, so your faith in them will depend on your faith in the future of inflation.
Your broker may be trying hard to sell you a limited partnership for your IRA -- especially in equipment leasing or oil and gas. His enthusiasm is not unaffected by the fact that he'll earn a bigger commission on such a sale than he would by selling you stocks.
"I don't think such partnerships are right for an IRA," tax-shelter expert Bill Brennan told my associate, Virginia Wilson.
When you put them into an IRA, you give up depreciation deductions, the investment tax credit and deductions for interest expense -- and those losses will reduce your investment's effective yield after tax.
Almost all types of partnership IRAs throw off something called unrelated business income, part of which can be taxable every year. A real-estate deal can escape this extra tax, but only if it borrows no money.
Brennan does think that some all-cash, no-borrowing real-estate partnerships hold out some promise for investors willing to take a risk.
He mentions JMB mortgage partnerships, Chicago; RIC equity partnerships, Escondido, Calif., and Wells office leases, Norcross, Ga., for hotel and shopping-center deals he calls risky.
Real-estate partnerships, by the way, usually last for 10 years or more, so they're not for investors close to retirement.