- An individual retirement account (IRA) is a special type of account you can open either at a bank or at a brokerage firm. It is special because it allows you to take advantage of certain tax benefits while saving for retirement. The money you invest in IRAs can be invested in individual stocks, bonds, mutual funds, certificates of deposits (CDs) and money market funds. You choose how money in an IRA is invested.
- You lose money in an IRA if individual stocks and stock mutual funds you purchased in the account fall to a lower value than what you paid for them. World stock markets lost an estimated $13 trillion in value during the darkest days of the global credit crisis between December 2007 and January 2008, according to the Progressive Policy Institute. People who owned stocks and stock mutual funds in their IRAs shared those losses.
- When interest rates rise, it causes the value of existing bonds and bond mutual funds that are included in a person's IRA to lose value. Investors are inclined to buy new bonds, which pay higher interest rates. Therefore, there is no guarantee that placing individual bonds and bond mutual funds in an IRA will prevent the account from losing money.
- You can open an IRA at a commercial bank and load the account with safe bank CDs and money market funds. Although you won't have to worry about seeing the IRA balance take a nosedive, you could be losing money in a less obvious way. If the interest rate you are earning on the CDs and money market funds is lower than the rate of inflation, it results in a decline in the purchasing power of the money in the IRA.