Ask the Blogger: Why Isn't My IRA Doing Anything?

Dear Blogger:  

I had a small amount of money in an old 401K from a job that only lasted 10 months. About six months after the job ended, it was automatically converted into a Rollover IRA, so at some point in the last year I went ahead and moved that Rollover IRA into the same portfolio where my current 401K is, just to have everything in one place. Weird thing is though, the Rollover IRA doesn't seem to be doing anything at all. It hasn't changed value in the last year. Did I do something wrong here? I'd actually like to contribute a few thousand dollars to an IRA this year, but it's possible I don't understand how IRAs work and if they can't actually make me any money, what's the point?  

IRA Going Nowhere Slow  

Dear IGNS:  

There are three possibilities here.  The first is that you have somehow stumbled onto a stock fund which has not changed in value at all over the last year.  Given that the S&P 500 is up about 11% since January 2012, this doesn't seem all that likely.  

The second is that there is a glitch in the mutual fund software, and you just aren't getting the updates.  This has happened to me, and can usually be resolved with a call to your IRA company.  

The third possibility, and I think the most likely, is that when you were converted to a rollover IRA, or when you transferred the funds to the new place, the firm put all the money in a money market mutual fund or similar cash account.  The interest rates on these things make scrooge look generous, so you won't have seen any noticeable appreciation.  

This is very easy to fix.  Login to your account and check to see what fund the money is in. If it is, as I suspect, in a money market, then you should be able to rransfer it into a stock fund right online.  I recommend you allocate 30% to a broad international stock fund, and 70% in a broad US index fund, such as an S&P500 fund.  You will never outperform the market--but you will never underperform it, either, which is what most actively managed mutual funds do.  

If you have trouble with the software--and lots of people do!--then just call the mutual fund company.  They should be able to handle a transfer for you, or walk you through the steps of doing it yourself.