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Now that we have looked at the different types of retirement accounts that are available, let us look at what to do with the money you put in your plan. Where you open a 401(k) plan at work or an IRA or SEP IRA on your own, once your money is deposited in the account you need to select an investment. The account itself is just a holding tank. It is the investment you select that determines how fast your money will grow. Where it earns 1 percent or 10 percent depends on how you invest it. With a retirement account, it is critical that you invest wisely, not gamble.
The best easy to do this is to follow the old advice about not putting all y0our eggs in one basket. In other words, you have got to diversity which means that instead of investing all of your money in just one or two places, you spread it around. Now spreading your money around does not mean opening up a lot of different retirement accounts in different places. If you do that and then make the same kinds of investment with each of them, all you have done is complicate your life. Spreading your money around means building a diversified portfolio of stocks, bonds and cash investment all done in one retirement account. Many people make this complicated. It does not need to be.
