Question

You have set a goal of saving $4,000 every year, beginning the year you finish school and start working and lasting until you retire. You are considering these three investment instruments: an IRA, stocks, and certificates of deposit. Which will likely produce the best long-term returns? Explain your answer.

Answer 1

IRA ( Individual retirement account)

Step-by-step explanation:

An IRA is a type of account set up purposely to encourage savings towards retirement , and as a result some benefits are inculcated into it.

One key advantage of IRA over the other options of savings is that it has a higher rate compared to the certificate of deposit , meanwhile the effect of the macro economic factors on the stocks could lead to its instability . This interest can even be be compounded over the savings period , yielding a cumulatively higher interest.

Another benefit of IRA is that the interest earned until retirement are exempted from taxes.