An individual retirement account (IRA) can be an important piece of your retirement plan, but you need to invest in the right stocks to make the most of the account. A few different factors about your personal situation will determine which stocks are perfect for your IRA. Your age and risk tolerance dictate how you should balance growth, stability, and dividend income. Roth and traditional IRAs have different tax treatments, which also influence the stocks that are perfect for either type of account.
The three stocks covered below provide a combination of high growth rates and stability through wide economic moats. They won't be the highest growth stocks, nor will they be the lowest risk, but they shouldn't be the only investments you hold in an IRA. These bring important attributes that would make them a valuable addition to almost any retirement account -- regardless of age, risk tolerance, or account type.
Total Return Level data by YCharts
Microsoft
You probably know Microsoft (MSFT 0.46%) as the company that developed the Windows operating system and the Office suite, but there's a lot more going on there. The company is split into three operating segments. One is focused on business and enterprise users, and it receives roughly 32% of its revenue from software licenses for services such as Office and Outlook. The consumer-focused segment contributes a similar portion of the top line, with sales of the Windows operating system, Xbox gaming, and search engine advertising on Bing.
Intelligent cloud is now Microsoft's largest and fastest-growing segment. Azure is gaining cloud computing market share despite competing with the likes of Alphabet (GOOGL +0.14%) (GOOG +0.08%) and Amazon. Microsoft could have rested on its laurels after achieving a dominant market position with Windows. Instead, it has shrewdly diversified its business while accelerating revenue growth by moving into expanding industries, such as cloud computing.
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Microsoft has developed a wide competitive moat with sheer scale, diversified operations, and a strong brand. It certainly goes head-to-head with several tech heavyweights across its various segments, but these giants are less susceptible to competition from smaller disruptors. There's quantitative evidence of Microsoft's wide economic moat, too. Return on invested capital (ROIC) measures a company's ability to generate profits by investing its resources. High ROIC is evidence of efficiency and pricing power, and Microsoft is one of the ROIC leaders in its peer group.
Return on Invested Capital (Annual) data by YCharts
High growth and stable operations make Microsoft a great candidate for any IRA.
Alphabet
The case for Alphabet is similar to Microsoft's. Google became the dominant force in web search and digital advertising, then it wisely expanded into other growth categories. Alphabet's Android dominates the global market for mobile operating systems, providing an even deeper foothold in app distribution and advertising. YouTube is the global leader for user-generated streaming video content and another major digital advertising powerhouse under Alphabet's umbrella. The company is also a major player in cloud computing, though it trails Microsoft Azure and AWS (Amazon Web Services).
Alphabet is dominant in several growth industries, which provides long-term stability. Alphabet's enormous research and development (R&D) budget is also among the largest in the world. That R&D, along with its extensive history of clever acquisitions, allows the tech giant to defend its competitive position and achieve high growth rates.
Data by YCharts
Alphabet stock is a pretty good bet to achieve better returns than the market indexes without taking on excessive risk.
Salesforce
Salesforce.com (CRM 0.58%) revolutionized enterprise sales with its cloud-based platform. Its technology allows large teams of sales professionals to coordinate their work across different locations. This is extremely valuable for organizations that need to understand and manage an enormous volume of communications with existing and potential customers.
The customer relationship management (CRM) software industry is fragmented, but Salesforce.com is the leader by a large margin. Its 20% market share is higher than its four largest competitors combined. The company protects its leadership position with high switching costs and an ever-expanding service offering. A huge number of sales and marketing professionals spend their formative years using Salesforce.com, so they are familiar with the interface and utilities of the platform. It is expensive and inconvenient for enterprises to switch to a competitor. Revenue attrition is under 10% on an annual basis, meaning that 90% of their customers renew annual contracts. That's clear evidence of competitive advantage and a wide moat.
Salesforce.com operates a less diversified business than Microsoft or Alphabet, but its 20% market share leaves plenty of room for growth. The CRM leader is expanding relatively rapidly as a result, and it's currently impressing customers with its improving analytics and AI tools. The company expects revenue to double over the next five years as it rides the wave of digital transformation that's impacting every industry.
