What are the benefits of opening an IRA in an unstable/uncertain economy?
"IRAs have huge tax-advantages. You'll pay taxes when you liquidate gold and silver. While volatile, ""the stock market has never produced a loss during any rolling 15-year period (1926-2009)"" [PDF]. This is perhaps the most convincing article for retirement accounts over at I Will Teach You To Be Rich. An IRA is just a container for your money and you may invest the money however you like (cash, stocks, funds, etc). A typical investment is the purchase of stocks, bonds, and/or funds containing either or both. Stocks may pay dividends and bonds pay yields. Transactions of these things trigger capital gains (or losses). This happens if you sell or if the fund manager sells pieces of the fund to buy something in its place (i.e. transactions happen without your decision and high turnover can result in huge capital gains). In a taxable account you will pay taxes on dividends and capital gains. In an IRA you don't ever pay taxes on dividends and capital gains. Over the life of the IRA (30+ years) this can be a huge ton of savings. A traditional IRA is funded with pre-tax money and you only pay tax on the withdrawal. Therefore you get more money upfront to invest and more money compounds into greater amounts faster. A Roth IRA you fund with after-tax dollars, but your withdrawals are tax free. Traditional versus Roth comparison calculator. Here are a bunch more IRA and 401k calculators. Take a look at the IRA tax savings for various amounts compared to the same money in a taxable account. Compounding over time will make you rich and there's your reason for starting young. Increases in the value of gold and silver will never touch compounded gains. So tax savings are a huge reason to stash your money in an IRA. You trade liquidity (having to wait until age 59.5) for a heck of a lot more money. Though isn't it nice to be assured that you will have money when you retire? If you aren't going to earn it then, you'll have to earn it now. If you are going to earn it now, you may as well put it in a place that earns you even more. A traditional IRA has penalties for withdrawing before retirement age. With a Roth you can withdraw the principal at anytime without penalty as long as the account has been open 5 years. A traditional IRA requires you take out a certain amount once you reach retirement. A Roth doesn't, which means you can leave money in the account to grow even more. A Roth can be passed on to a spouse after death, and after the spouse's death onto another beneficiary. more on IRA Required Minimum Distributions." Regarding investing in gold vs. stocks, I don't think I could say it better than Warren Buffett: You could take all the gold that's   ever been mined, and it would fill a   cube 67 feet in each direction. For   what that's worth at current gold   prices, you could buy all -- not some   -- all of the farmland in the United States. Plus, you could buy 10 Exxon   Mobils, plus have $1 trillion of   walking-around money. Or you could   have a big cube of metal. Which would   you take? Which is going to produce   more value? Even Gold lost 1/2 of it's value between 1980 and 2000.   You would not have fared well if you retired during that period heavily invested in Gold. http://www.usagold.com/reference/prices/history.html You said yourself that one can not foresee what the future will bring. At least IRA's force you to into dollar cost averaging, whereas if your money was outside of a retirement account, you might be tempted to speculate. -Ralph Winters You bring up a valid concern.  IRAs are good retirement instruments as long as the rules don't change.  History has shown that governments can change the rules regarding retirement accounts. As long as you have some of your retirement assets outside of an IRA I think IRAs are good ways to save for retirement. It's not possible to withdraw the money before retirement without penalty. Also, you will be penalized if you do not withdraw enough when you do retire. Yes, it's possible to withdraw money without penalty but you have to do it in a special way. For example you have to withdraw the same amount every year until you retire: Tapping Your IRA Penalty-Free  as for unstable economy - you can trade many instruments in your IRA. you can do bonds, mutual funds, stocks, ETFs or just keep it in cash. Some do well in bad economy. As I stated in my comment on @JCotton's answer, the only way you benefit by putting your money in an IRA or other tax-deferred vehicle is if you expect to have a lower tax rate when you withdraw than when you put the money in.  If you look at @JCotton's numbers and remember to pay taxes when you withdraw the money in 30 years, you will see that both situations - paying taxes now or 30 years from now - give you the exact same dollar amount if the tax rates are the same at both points in time.  So if you put money in an IRA, you're betting on the fact that the government will not substantially raise interest rates by then, and/or that you will be in a lower tax bracket. To me, the only valid reasons to invest in an IRA or 401K are the following: However, you should also consider the major downside that the money is locked away and, at best, inconvenient to access when you need it.  At worst, you have to pay taxes and penalties if you ever withdraw that money.  If you are a financially responsible person, I think you're generally better off keeping your money outside of an IRA or 401K, with the exception of making sure to get all of your employer's matching contributions. "Your are mixing multiple questions with assertions which may or may not be true. So I'll take a stab at this, comment if it doesn't make sense to you. To answer the question in the title, you invest in an IRA because you want to save money to allow you to retire. The government provides you with tax incentives that make an IRA an excellent vehicle to do this. The rules regarding IRA tax treatment provide disincentives, through tax penalties, for withdrawing money before retirement. This topic is covered dozens of times, so search around for more detail. Regarding your desire to invest in items with high ""intrinsic"" value, I would argue that gold and silver are not good vehicles for doing this. Intrinsic value doesn't mean what you want it to mean in this context -- gold and silver are commodities, whose prices fluctuate dramatically.  If you want to grow money for retirement over a long period, of time, you should be invested in diversified collection of investments, and precious metals should be a relatively small part of your portfolio."
Without making specific recommendations, it is worthwhile to point out the differing tax treatments for a Roth IRA: investments in a Roth IRA will not be taxed when you withdraw them during retirement (unless they change the law on that or something crazy). So if you are thinking about investing in some areas with high risk and high potential reward (e.g. emerging market stocks) then the Roth IRA might be the place to do it. That way, if the investment works out, you have more money in the account that won't ever be taxed. We can talk about the possible risks of certain kinds of investments, but this is not an appropriate forum to recommend for or against them specifically. Healthcare stocks are subject to political risk in the current regulatory climate. BRICs are subject to political risks regarding the political and business climate in the relevant nations, and the growth of their economies need not correspond with growth in the companies you hold in your portfolio. Energy stocks are subject to the world economic climate and demand for oil, unless you're talking alternative-energy stocks, which are subject to political risk regarding their subsidies and technological risk regarding whether or not their technologies pan out. It is worth pointing out that any ETF you invest in will have a prospectus, and that prospectus will contain a section discussing the risks which could affect your investment. Read it before investing! :) I don't quite understand your thought process here.  First, in a tax-advantaged retirement account you are NOT allowed to engage in a transaction with yourself.   If you just want to run a business and be able to write off expenses, how is using the self-directed IRA relevant? You can either buy the condo using your tax-advantaged account and rent it out to regular tenants.  Or you buy the condo yourself using your own money and then operate your business so you can deduct business expenses from doing so.  401k's allow you to take a loan out of it, so you can look into that as well. A lot of people on here will likely disagree with me and this opinion.   In my opinion the answer lies in your own motives and intentions.   If you'd like to be more cognizant of the market, I'd just dive in and buy a few companies you like.  Many people will say you shouldn't pick your own stocks, you should buy an index fund, or this ETF or this much bonds, etc.  You already have retirement savings, capital allocation is important there.  You're talking about an account total around 10% of your annual salary, and assuming you have sufficient liquid emergency funds; there's a lot of non-monetary benefit to being more aware of the economy and the stock market.  But if you find the house you're going to buy, you may have to liquidate this account at a time that's not ideal, possibly at a loss. If all you're after is a greater return on your savings than the paltry 0.05% (or whatever) the big deposit banks are paying, then a high yield savings account is the way I'd go, or a CD ladder. Yes, the market generally goes up but it doesn't ALWAYS go up.  Get your money somewhere that it's inured and you can be certain how much you'll have tomorrow. Assuming a gain, the gain you'll see will PALE in comparison to the deposits you'll make.  Deposits grow accounts.  Consider these scenarios if you allocate $1,000 per month to this account.   1) Assuming an investment return of 5% you're talking about $330 return in the first year (not counting commissions or possible losses). 2) Assuming a high yield savings account at 1.25% you're talking about $80 in the first year.   Also remember, both of these amounts would be taxable. I'll admit in the event of 5% return you'll have about four times the gain but you're talking about a difference of ~$250 on $12,000.  Over three to five years the most significant contributor to the account, by far, will be your deposits.   Anyway, as I'm sure you know this is not investment advice and you may lose money etc. "I would add to the other excellent answers that another factor besides just high unemployment numbers is the fear people have regarding the ""financial"" aspects of the country, that is the value of stocks and the value of the dollar.  When the economy is sluggish it means people aren't buying enough, therefore companies aren't making enough, therefore their profits are too low and people start to divest from them, and stock prices drop.  Or even the fear of this happening can induce people to sell off shares.   The point is, people are worried ""in this economy"" because if--due to unemployment, low spending/consumer confidence--the stock market crashes again as it did in 2008/09, that represents a lot of savings lost, e.g. 40-50% of what one was counting on to retire with, particularly if you panic sell at the bottom.  Now suddenly it's as if you had a huge robbery, and you will have to work longer into your retirement years than you'd planned.  Similarly, if, due to monetary policy, the U.S. inflates the dollar, what one saved for retirement may not be sufficient.  (These arguments are true for shorter periods than just one's retirement, but just taking that as an example). So it's not just unemployment that is worrisome ""in this economy"".  This said, I agree with George Marian that one ought to be careful and plan well regardless of the winds of the economy.  I guess for most people (and companies), though, ""in this economy"" means they can't get away with the kind of carelessness they might have during a boom." This analysis misses the opportunities the Roth IRA presents to those with special access. It assumes that all money grows at the same rate, with investments at regular intervals. These assumptions hold for normal workers, but not for the privileged.  Suppose, for example, that in a single year you have limited access to a security that is an acorn you know will grow into a mighty oak; for this example, this security will grow 1000x over some short period of time. For simplicity, assume both the value of acorns you can buy and the the maximum IRA contribution in this year is $5K.  After the short acorn growth period, the after tax values are: There is a minor difference in the amount of money you need to buy the acorns (pre v. post tax), but this is negligible relative to the amount of cash you can assume you have on hand to have special access.  The Atlantic provides an acorn example from private equity (not used with a Roth) and this Washington Post article describes someone with non-publicly traded startup stocks and a Roth. Then at the end, if you decide to cash in your house, you can roll the   proceeds into a fancier house to avoid paying taxes on your profit. The problem is that the book was written in 1989. That comment is no longer true; that part of the tax law changed in the 1990's. Also in 1989 the maximum amount that person could put in an IRA was $2,000 and hadn't been raised for almost a decade and wouldn't be raised for another decade. Roth accounts didn't exist; nor did HSA's or 529's. Most people didn't have a 401K. You are asking to compare what options we have today compared to what was available in the late 1980's.  For me except, for the years 2001-2005 and 2010-2015, the period from 1988 until now has had flat real estate values. Still the current values haven't returned to the peak in 2005. The score is 11 great years, 17 flat or negative. I know many people who during the 1990's had a zero return on their real estate. You might be confusing two different things. An advantage of investing over a long term is the compounding of returns.  Those returns can be interest, dividends, or capital gains.  The mix between them depends on what you invest it and how you invest in it.  This advantage applies whether your investment is in a taxable brokerage account or in a tax-advantaged 401K or IRA.  So, start investing early so that you have longer for this compounding of returns to happen. The second thing is the tax deferral you get from 401(k) or IRAs.  If you invest in a ordinary taxable account, then you have to pay taxes on your interest and dividends for the year in which they occur.  You also have to pay taxes on any capital gains which you realize during the year.  These yearly tax payments are then money that you don't get the benefit of compounding on.  With 401(k) and IRAs, you don't have to pay taxes during these intermediate years. I think you may be drawing the wrong conclusion about why you put what type of investment in a taxable vs. tax-advantaged account. It is not so much about risk, but type of return. If you're investing both tax-advantaged and taxable accounts, you can benefit by putting more tax-inefficient investments inside your tax-advantaged accounts. Some aggressive asset types, like real estate, can throw off a lot of taxable income. If your asset allocation calls for investing in real estate, holding it in a 401k or IRA can allow more of your money to remain invested, rather than having to use it to pay for taxes. And if you're holding in a Roth IRA, you get that tax free. But bonds, a decidedly non-aggressive asset, also throw off a lot of taxable income. You're able to hold them in a tax-advantaged account and not pay taxes on the income until you withdraw it from the account (or tax free in the case of a Roth account.) An aggressive stock fund that is primarily expected to provide returns via price appreciation would do well in a taxable account because there's likely little tax consequence to you until it is sold. "That depends, really. Generally speaking, though - Roth IRAs are THE PLACE for Stock-Market/Mutual-Fund investing. All the off the wall (or, not so off the wall) things like Real Estate investments, or buying up gold, or whatever other ideas you hear from people - they may be good or bad or whatnot. But your Roth IRA is maybe not the best place for that sort of thing.  The whole philosophy behind IRAs is to deliberately set aside money for the future. Anything reasonable will work for this. Explore interesting investment ideas with today's money, not tomorrow's money. That being said - at your age I would go for the riskier options within what's available.  If I were in your situation (and I have been, recently), I would lean toward low-fee mutual funds classified as ""Growth"" funds.  My own personal opinion (THIS IS NOT ADVICE) is that Small Cap International funds are the place to be for young folks. That's a generalized opinion based on my feel for the world, but I don't think I'm personally competent to start making specific stock picks. So, mutual funds makes sense to me in that I can select the fund that generally aligns with my sense of things, and assume that their managers will make reasonably sound decisions within that framework. Of course that assumption has to be backed up with reputation of the specific MF company and the comparative performance of the fund relative to other funds in the same sector. As to the generalized question (how else can you work toward financial stability and independence), outside of your Roth IRA: find ways to boost your earning potential over time, and buy a house before the next bubble (within the next 18 months, I'm GUESSING)." If you look at history, it shows that the more people predict corrections the less was the chance they came. That doesn't prove it stays so, though. 2017 is not any different than other years in the future: Independent of this, with less than ten years remaining until you need to draw from your money, it is a good idea to move away from high risk (and high gain); you will not have enough time to recover if it goes awry. There are different approaches, but you should slowly and continuously migrate your capital to less risky investments. Pick some good days and move 10% or 20% each time to low-risk, so that towards the end of the remaining time 90 or 100% are low or zero risk investments. Many investment banks and retirement funds offer dedicated funds for that, they are called 'Retirement 2020' or 'Retirement 2030'; they do exactly this 'slow and continuous moving over' for you; just pick the right one. Why would somebody want an IRA if they have a 401K and a Roth 401K? "Well.... If you have alllll your money invested, and then there's a financial crisis, and there's a personal crisis at the same time (e.g. you lose your job) then you're in big trouble. You might not have enough money to cover your bills while you find a new job. You could lose your house, ruin your credit, or something icky like that.  Think 2008. Even if there's not a financial crisis, if the money is in a tax-sheltered retirement account then withdrawing it will incur ugly penalities. Now, after you've got an emergency fund established, things are different. If you could probably ride out six to twelve months with your general-purpose savings, then with the money you are investing for the long term (retirement) there's no reason you shouldn't invest 100% of the money in stocks. The difference is that you're not going to come back for that money in 6 months, you're going to come back for it in 40 years. As for retirement savings over the long term, though, I don't think it's a good idea to think of your money in those terms. If you ever lose 100% of your money on the stock market while you've invested in diversified instruments like S&P500 index funds, you're probably screwed one way or another because that represents the core industrial base of the US economy, and you'll have better things to worry about, like looking for a used shotgun. Myself, I prefer to give the suggestion ""don't invest any money in stocks if you're going to need to take it out in the next 5 years or so"" because you generally shouldn't be worried about a 100% loss of all the money in stocks your retirement accounts nearly so much as you should be worried about weathering large, medium-term setbacks, like the dot-com bubble crash and the 2008 financial crisis. I save the ""don't invest money unless you can afford to lose it all"" advice for highly speculative instruments like gold futures or social-media IPOs. Remember also that while you might lose a lot of your money on the stock market, your savings accounts and bonds will earn you pathetic amounts by comparison, which you will slowly lose to inflation. If you've had your money invested for decades then even during a crash you may still be coming out ahead relative to bonds." "To keep it simple, I will keep the focus between a Trad IRA and a normal Taxable account (Roth's and 401(k) add more complications that make another problem).  I will also assume, based on the question, that you aren't able to deduct the IRA contributions. Also, a Roth is better in every way than a non-deductible Trad IRA so the ""backdoor Roth"" mentioned in other answers is probably the way to go and this is more of an academic exercise.  Ok, so why bother with the IRA if you're taxed anyway?  Because you aren't taxed as you go! With a normal non-tax-advantaged account you have to pay taxes every year on any realized capital gains and dividends (including fund distributions). Because of the compounding nature of savings, delaying paying taxes is in your best interest.  Simple example:  Taxable Account: IRA Account: Now, this is a very simplified example. If you're more tax-conscious (i.e. more buy-and-holding), you can delay paying some of the long-term cap gains in the taxable account, but any short-term cap gains (including distributions from the underlying funds) will be at your marginal income tax rate.  A few other observations: EDIT: I set up a spreadsheet where each year I deposited $1000 for 35 years. Each year, the balance in the IRA account grows by 5%, but the taxable only by 5%*(1-0.15) = 4.25% due to the effect of taxes. At the end of 35 years, my simulation assumes you pay 15% on all the gains in the IRA, which would likely not be the case, but easier than forecasting through retirement and demonstrates what I'm trying to show. Here's plot showing the balance in the various accounts, the blue is the IRA account, orange the taxable account, and grey is the effective balance of the IRA, after paying taxes on the gains:   And here's a plot of the advantage of the IRA (after paying taxes on the gains), vs the taxable account:  Whether that's worth it to you or anyone depends on some the assumptions in the simulation, especially effective tax rates, and growth rates, as well as any personal issues. Some people may be less likely to raid an IRA account, for example, than a normal account. Conversely, if you have a project coming up, you may need something a bit more liquid than an IRA." Unfortunately, that's a call only you can make and whichever route you choose comes with advantages and disadvantages.  If you manage your money directly, you may significantly reduce costs (assuming that you don't frequently trade index funds or you use a brokerage like RobinHood) and take advantage of market returns if the indexes perform well.  On the other hand, if the market experiences some bad years, a professional might (and this is a huge might) have more self-discipline and prevent a panic sell, or know how to allocate accordingly both before and after a rise or fall (keep in mind, investors often get too greedy for their own good, like they tend to panic at the wrong time).  As an example of why this might is important: one family member of mine trusted a professional to do this and they failed; they bought in a rising market and sold in a falling market. To avoid the above example, if you do go with the professional service, the best course of action is to look at their track record; if they're new, you might be better on your own.  Since I assume this one or more professionals at the company, testing to see what they've recommended over the years might help you evaluate if they're offering you a good choice. Finally, depending on how much money you have, you could always do what Scott Adams did: he took a portion of his own money and managed it himself and tested how well he did vs. how well his professional team did (if I recall, I believe he came out ahead of his professional team).  With two decades left, that may help guide you the rest of the way, even through retirement. You have many options, and there is no one-size-fits-all recommendation. You can contribute to your IRA in addition to your 401(k), but because you have that 401(k), it is not tax-deductable. So there is little advantage in putting money in the IRA compared to saving it in a personal investment account, where you keep full control over it. It does, however, open the option to do a backdoor-rollover from that IRA to a Roth IRA, which is a good idea to have; you will not pay any taxes if you do that conversion, if the money in the IRA was not tax deducted (which it isn't as you have the 401(k)). You can also contribute to a Roth IRA directly, if you are under the income limits for that (193k$ for married, I think, not sure for single). If this is the case, you don't need to take the detour through the IRA with the backdoor-rollover. Main advantage for Roth is that gains are tax free. There are many other answers here that give details on where to save if you have more money to save. In a nutshell, In between is 'pay off all high-interest debt', I think right after 1. - if you have any. 'High-Interest' means anything that costs more interest than you can expect when investing.