A friend of mine who’s 24 years old, recently asked me for advice on what kind of investments he should pick for his Roth IRA, especially since he doesn’t want to spend time reading and researching.

First of all I think my friend mentions a very important aspect of an IRA. A Roth IRA (or a Traditional IRA) is not an investment in and of itself. You may hear someone say that you should open up a Roth IRA because they have great returns. You have to remember that the IRA doesn’t produce returns. The investments IN the IRA produce these returns. An IRA is like a basket that holds these investments. Now, on to what investments to pick for your IRA. Realize up front that your IRA may not be your only investment account. Even though you may want a well diversified portfolio, your IRA doesn’t have to be. You may have a 401(k) or a 403(b) at work. You may also have a money market account that you use as an emergency fund.

You aren’t more diversified if you hold the same mutual funds in your IRA as you do in your 401(k). The same applies to holding cash in your IRA if you already have a cash reserve elsewhere. These aren’t the only scenarios, but I’m illustrating a point. You may want to figure out what you’re ideal portfolio would consist of, see what you already have, and begin to fill in the blanks.

I would make sure that I had a sizeable amount of cash in an emergency fund. I would hold this cash in a money market or online savings account outside of an IRA, but read my post, and you may decide to hold it inside.

Mutual funds are a great way to provide instant diversification because you’re immediately invested in a wide array of stocks or bonds. ETFs or Exchange Traded Funds are very similar but don’t have some of the fees that mutual funds will usually have. You may choose index funds because you want to match the returns of the general market as a whole. I will choose to hold these types of investments in a 401(k) when I’m eligible at the end of the year, because my only options might be handful of funds. I’ll have to check with our HR department.

After mutual funds and ETFs, you can move on to individual stocks and bonds. I would start with solid blue chip companies that pay a dividend. Start by looking at the 30 companies that make up the Dow Jones. As you begin accumulating more and more stocks, you’ll be able to build off of this solid foundation. Essentially you’re creating your own personal “fund” at this point.

It may seem very daunting at first as you decide what to specifically put in your Roth IRA, but as you look into some of the different options, you’ll be amazed at how much you’ll learn so quickly. Also, once you set up your account, say, with an online brokerage (I chose T. Rowe Price), you’ll have access to a lot of information that can help you decide what to choose.

I hope all this helps. There’s no one right answer, and everyone’s situation is different. If you still have questions, feel free to email me with more information about your specific situation and I’ll help out as best I can.