Invest your IRA like a pro

@Money February 15, 2012: 9:41 AM ET

NEW YORK (CNNMoney) -- I'm 38 and just rolled $120,000 into an IRA. I'm trying to decide whether I should invest it on my own or pay an investment firm a fee to do it for me. I'm inexperienced, so I really don't even know what information I should factor into this decision. Any suggestions? -- Trevor S.

You've already demonstrated good financial sense by rolling your retirement savings into an IRA.

Many people give in to the temptation to tap into their stash during a job switch rather than roll it over, and this can prove costly. A 2009 Government Accountability Office study showed that a typical 40-year-old who cashes out his 401(k) would end up with 45% less in savings at retirement even if he continued to contribute to a new 401(k) over the next 25 years.

Now, will that good financial sense you displayed in rolling over your IRA carry over to investing it?

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I think the answer is yes. After all, investing on your own doesn't mean you have to pick individual stocks and bonds. There are plenty of mutual funds and ETFs that can help even the greenest of green investors grow their nest egg like a pro.

The easiest way to go -- and the most effective for a newbie -- is to simply invest your $120,000 in a target-date retirement fund. Pick a fund with a date that roughly matches the year you'll retire -- say, a 2040 fund in your case -- and you'll get a ready-made mix of stocks and bonds that's not only right for your age but becomes more conservative as you approach retirement.

Another way to go is to invest in a balanced fund. Much like some pension funds, these funds usually invest 60% of assets in stocks and 40% in bonds, and adheres closely to this mix regardless of what's going on in the financial markets. The idea is that you get long-term growth from stocks and a bit of ballast during periods of market upheaval from the bonds.

Or you could create your own portfolio of stock and bond funds. If you choose this option, I'd recommend using low-cost index mutual funds or ETFs (exchange-traded funds) that track broad market indexes and thus effectively represent the entire stock or bond market with a single fund.

You can find all these options -- target funds, balanced funds, index funds and ETFs -- on our MONEY 70 list of recommended funds.

Of course, if you decide to fly solo, you will have to exercise some judgment. In the case of target-date funds, you'll want to be sure you understand how the fund works, especially how it shifts from stocks to bonds over time.

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With a balanced fund, you'll have to decide whether the usual 60-40 stocks-bonds mix is aggressive enough to get the growth you need when you're young, and conservative enough to protect your nest egg as you near and enter retirement.

And to put together a portfolio of stock and bond funds on your own -- even with index funds or ETFs -- requires that you decide on an asset mix, or blend of stocks and bonds, that makes sense for you (although you could use a target-date fund as a guide for that).

But if you find the prospect of going it alone too daunting -- or you prefer some initial guidance -- there are a variety of ways to get professional help.

Many mutual fund families and investment firms, including well-known companies like Fidelity, Schwab, T. Rowe Price and Vanguardoffer advisory services that will put together and manage a portfolio of funds or ETFs, usually for an annual fee (plus the expenses of the funds or ETFs themselves).

Another possibility is a managed account, essentially a portfolio of stocks, bonds, funds or ETFs that's assembled and overseen by a money manager or investment adviser. In the past, managed accounts often required minimum initial investments well into the hundreds of thousands of dollars, these days some firms offer them to investors with $50,000 or less to invest.

Usually, managed-account advisers charge a percentage of assets under management -- say, 1% to 2% -- plus the expenses of the underlying funds, although some charge a fixed flat fee for their services.

And there's the option of hiring a financial planner who will assess your needs and help you invest your IRA and other assets either for an ongoing annual fee or, in some cases, even on a hourly or project basis.

If you decide to get help, you'll certainly want to see in writing how much you'll owe in fees, by which I mean all fees -- advisory, fund and ETF charges and sales commissions, if any.

Beyond that, you also want to ask what else you're getting aside from a portfolio of investments. At the very least, you want an initial evaluation to settle on an appropriate portfolio and periodic updates on performance. (Check out what to ask an investment firm or adviser, from the Securities and Exchange Commission.)

A pro can also assure you end up with a portfolio of investments that makes sense given your goals and risk tolerance -- and boost the odds that you'll stick with that portfolio when the financial markets (and other investors) are going crazy.

Beyond that though, it's important to be realistic. The reason to go to a pro isn't for knock-your-socks-off market-beating returns. Over the long run, most investment managers don't outperform the market averages, and it's nearly impossible to predict in advance those that will.

Bottom line: With a little bit of thought and common sense, most people should be able to invest their retirement savings just as well on their own.

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