Q: I just opened my first IRA. I have money in mutual funds through my 401(k) at work, so I'd like to use my IRA to buy some individual stocks. What are some good choices to start with?
There are broad categories of stocks that can maximize the tax advantages of your IRA. Specifically, stocks that pay relatively high dividend yields, and that you could see yourself holding for decades to come, can take full advantage of the tax-free compounding potential of your IRA. Real estate investment trusts (REITs), utilities, and Dividend Aristocrats are three good categories for IRAs.
Of course, there are dozens of stocks that could fit these criteria. Just to name two examples from my own IRA, I have shares of net-lease REIT Realty Income and telecom titan AT&T, which I consider to be great examples of the types of stocks that make great IRA investments.
Both pay dividend yields of well over 4%, and I plan to hang on to them for years while my dividends are reinvested in more shares and my investments compound over time. Additionally, both stocks have fantastic track records of increasing their dividends, and they tend to perform well no matter what the economy is doing.
These are just two examples out of many possible stocks, but the bottom line is that the best stocks to fill your IRA with are those that pay steadily growing dividends and whose businesses should do just fine for decades to come.