When you first start saving for retirement, it's hard to follow the classic investment advice: Diversify. You have fewer dollars to stretch among different types of investments, and each transaction fee threatens to eat a big hole in your small account.

But diversification can be a soothing tonic if the market's choppy waters churn your stomach. It's not impossible to get some measure of diversification into a small IRA.

Shop around. It's hard to diversify when a single mutual fund wants thousands of dollars just to get in the door. But many mutual funds lower the minimum initial investment requirement for anyone purchasing through an IRA. If your favorite fund remains out of reach, you might find a similar fund with a lower threshold.

You'll have the best luck if you're looking for an index fund, where competing funds abound. If you can't find what you need, hunt around among exchange-traded funds. Minimum purchase requirements won't be a problem.

Combine and conquer. If you're also saving money in a workplace account like a 401(k), consider your IRA an adjunct to your workplace account. Combine the two balances and treat them as a single retirement account. You'll have more money to spread among investments, and you can use your IRA to fill the shortcomings of your 401(k). (You are contributing at work and aren't leaving any free money on the table, right?)

Outsource. Find an investment that spreads your money around. A balanced fund combines stock and bond investments in one package. The Vanguard Balanced Index (VBINX), for example, holds 60% of investors' money in stocks and 40% in bonds. The Vanguard Wellesley Income Fund (VWINX) flips that ratio over and puts 60% of investors' money in bonds and less than 40% in stocks.

A lifecycle or target fund similarly spreads your money among domestic and international stocks, along with bonds, and adjusts the mix automatically as you get closer to retirement. Before choosing one of these funds, decide how you would allocate your money among different asset classes, then pick the investment that matches your style. You might find you're more conservative -- or more aggressive -- than a fund meant for your target retirement date.

Plan ahead. Map out your ideal portfolio, then build it over two to three years. Start with the investments that give you the most diversification for your dollar, then add additional pieces as you make deposits in future years. It's hard to beat the diversification offered by a total stock market index fund, which spreads your money among more than 3,500 stocks.

Don't bother diversifying. Diversification helps reduce your risk of losing money when one investment tanks, but you might decide you'd rather risk it all if you're a long way from retirement. Use your IRA to buy your favorite stocks and diversify in later years when you're more worried about protection than growth.

An IRA is a great place to hold stocks yielding high dividends because the tax deferral lets those earnings pile up even faster. You'll find plenty of high-yielding companies that might add strength to your retirement plan, like these:


Current Dividend Yield

GlaxoSmithKline (NYSE: GSK)




Pfizer (NYSE: PFE)


Altria (NYSE: MO)


Verizon (NYSE: VZ)


Source: Yahoo Finance.

Whatever strategy you choose, be certain not to waste any of your investment dollars on unnecessary fees. Before you open an IRA, find a broker that lets investors purchase a selection of mutual funds without transaction costs. Or, if you want to stock your IRA with stocks or exchange-traded funds, find a broker with low trading fees. Scrutinize the expense ratios of any mutual funds on your investing wishlist, too.

For more IRA investing ideas, see:

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Fool contributor Mary Dalrymple does not own stock in any company mentioned in this article. She welcomes your feedback. Pfizer and GlaxoSmithKline are Income Investor recommendations. Pfizer is also a recommendation of Inside Value. The Motley Fool disclosure policy has a diversity of interests.