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The Best Funds for Your IRA

Scrambling to finish up your holiday shopping while also trying to figure out where to plunk down this year's IRA contribution? Not to worry -- at least not much. We can't help with the shopping, alas, but there's good news on the IRA front: You have until next April's tax-filing deadline to kick in your contribution for the 2006 tax year.

It's a procrastinating investor's dream come true!

That said ...
Still, just because you can put it off until then certainly doesn't mean that you should. Indeed, if you want to be smart and deliberate about your investment decisions (and you know you do, Fool), the year's end provides a choice time to think about the year ahead -- and beyond.

To that end, I encourage you to spend some quality time with the Fool's IRA Center, which, for all you cut-to-the-chase types, comes complete with a 60-Second Guide to getting started with what really is one of the very best ways to save for retirement. In the meantime, here are two quick-and-dirty ways to make smart IRA decisions fast. We'll call 'em the no-brainer and the brainer.

The no-brainer
Two words: index funds.

In a pinch, index funds can be tough to beat, and these days, they come in all shapes and sizes. If your portfolio is in need of smaller-cap exposure, you might consider iShares Russell 2000 Growth Index (IWO), an exchange-traded fund (ETF) with holdings that include the likes of ValueClick (Nasdaq: VCLK  ) , CNET Networks (Nasdaq: CNET  ) , and TIBCO Software (Nasdaq: TIBX  ) .

Those looking to reel in bigger fish, meanwhile, might opt for Vanguard 500 Index (FUND: VFINX  ) , a dirt cheap index tracker anchored by such mega-caps as Johnson & Johnson (NYSE: JNJ  ) , Procter & Gamble (NYSE: PG  ) , and Bank of America (NYSE: BAC  ) .

No matter which kind of fund you choose, the bottom line with the no-brainer approach is this: If you do wait until the last minute and find you need to write an IRA investment check in a hurry, you could do worse than an index pick.

Then again, you could also do a lot better. Who, after all, wants to make a decision as important as where to invest your IRA dough for the year in a pinch? No one, that's who. It's for that reason that we bring you ...

The brainer
As big a fan of index funds as I am, I'm a bigger fan of assembling a portfolio that includes both actively and passively managed picks. Why so? Well, just as small-cap stocks sometimes outpace the big boys -- and just as value sometimes trumps growth -- indexing and active management frequently trade pole position, too. Indeed, between 1999 and 2005, the typical actively managed fund trumped the S&P by a significant margin.

And that's just the typical actively managed fund. Imagine the possibilities if, when you went fund shopping for your IRA, you brought the same kind of analytical rigor to bear on funds that some folks bring to stocks.

Actually, you don't have to imagine. That's precisely what we do in Motley Fool Champion Funds, the newsletter designed to help you beat the market with -- you guessed it -- mutual funds. Those funds we focus on sport talented stock pickers with long-term track records of success and sound investment strategies. And for all you fans of passive management, not to worry: We provide plenty of scoop on index investing, too.

The Foolish bottom line
If you think you might be interested, you can click right here for a free 30-day guest pass to Champion Funds. In the meantime, plan to head on over to our IRA Center where, among other juicy nuggets, you can learn how to open an account and whether a Roth or traditional IRA is the better bet for you.

Whatever you do, just don't wait until tax-filing day is upon you to make your IRA contribution decision, OK? If you're anything like me, you're going to be busy enough as it is.

For further IRA Foolishness:

This article was originally published on March 1, 2005. It has been updated.

Shannon Zimmerman runs point on the Champion Funds newsletter service. Shannon doesn't own any of the securities mentioned. CNET is a Rule Breakers pick. Johnson & Johnson and Bank of America are Income Investor recommendations. The Fool has a strict disclosure policy.

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