30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Chapter 20. Identify the Best Investments for Your IRA

"The lord works in mysterious ways."

Uh-oh, I thought, as I read the first line of a letter from a Morningstar reader, who proceeded to regale me with an investment-related tale worthy of an O. Henry story.

A fifty-something computer programmer, he was devastated when he lost his job in the financial services industry back in mid-2008. With a mortgage and two kids hurtling toward college, the layoff obviously brought worries about what the future would bring.

At the time of his layoff, he was also panicked about his 401(k) portfolio, which included a healthy dose of stock funds as well as many shares of his employer's stock, which was quickly going from bad to worse.

Here's where the plot twist comes in: Shortly after the layoff, he had rolled over his 401(k)—the bulk of his retirement savings—into an IRA. Paralyzed by indecision over where to invest the money, he had left the assets sitting in an ultra-low-yielding, but ultra-safe money market fund. In so doing, his retirement portfolio was cushioned during the late 2008-early 2009 market sell-off, the worst since the Great Depression, which saw the S&P 500 dropping by 50 percent. Even more fortuitously, he had also dumped his company stock at an opportune time. Soon after he sold the stock and rolled his money into the IRA, shares of his former company skidded from $25 a share down to about $3. He hadn't yet found a new job at the time he wrote to me, but he noted that his inaction ...