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When I ask people about their investments, the usual reply is, “I have a Roth IRA” or “I have a workplace retirement account.” But a retirement account isn’t an investment — it’s a container. Roth IRAs, traditional IRAs, 401(k)s and 403(b)s are account types that hold your actual investments: stocks, bonds, mutual funds, ETFs, and so on.
Think of accounts as baskets and investments as the fruit inside them. Your TIAA CREF workplace plan or a Schwab 401(k) is like a basket that holds individual assets. The basket itself isn’t the fruit; it just stores it. Different baskets have different features — likewise, different accounts have different rules and benefits — but the account type doesn’t tell you what’s inside.
For example, here’s what’s in one of my Schwab traditional IRAs:
– 76.56% Vanguard FTSE Emerging Markets ETF (VWO)
– 16.83% an individual corporate bond
– 6.61% cash
If someone asks “What’s in your Schwab IRA?” the right answer isn’t “an IRA.” The correct answer names the actual assets: an international stock index ETF, a corporate bond, and cash.
To be a smarter investor, know what you own. Understand both the investments themselves and the kinds of accounts that hold them. Spend a few minutes each week reviewing your holdings, and look at all your accounts together instead of one piece at a time. If you’re unsure about a holding, ask for clarification.
What types of investments do you own?
