Choosing retirement account investments

When you establish a retirement account, you may not realize that the retirement account is simply a shell or shield that keeps the federal, state, and
local governments from taxing your investment earnings each year. You
still must choose what investments you want to hold inside your retirement
account shell.
You may invest your IRA or self-employed plan retirement account (SEP-IRAs,
Keoghs) money into stocks, bonds, mutual funds, and even bank accounts.
Mutual funds (offered in most employer-based plans), are an ideal choice because they offer diversification and professional management. After you decide which financial institution you want
to invest through, simply obtain and complete the appropriate paperwork for
establishing the specific type of account you want. (Flip to the later section
“Choosing the Right Investment Mix” for more information.)

Taming Your Taxes in NonRetirement Accounts
When you invest outside of tax-sheltered retirement accounts, the profits and
distributions on your money are subject to taxation. So the non-retirement
account investments that make sense for you depend (at least partly) on
your tax situation.
If you have money to invest, or if you’re considering selling current investments that you hold, taxes should factor into your decision. But tax considerations alone shouldn’t dictate how and where you invest your money. You
should also weigh investment choices, your desire and the necessity to take risk, personal likes and dislikes, and the number of years you plan to hold the
investment (see the “Choosing the Right Investment Mix” section, later in the
chapter, for more information on these other factors).