Updated: Oct 16
Roth IRAs are a fantastic investment tool; they are essentially bank accounts that allow you to buy and sell stocks and mutual funds. The best part about Roth IRAs is that the gains are tax-free when you withdrawal your money after the age of 59 and a half. The best way to use your Roth IRA account is to create it between the ages of 18-25, and invest in stocks that you believe will outperform in the long term.
Since most people keep this account for more than 30 years, it's best to invest in stocks that have a long-term horizon. In your Roth IRA, you should be looking at stocks that will grow for years, rather than buying and selling new stocks every 2-3 months. The old saying is "set it and forget it." Roth IRAs are the epitome of this saying.
The easiest way to choose stocks for your Roth IRA is to think about products or services that you will still use 5 years from now, and extra props should be given to things you think you'll do more in 5 years than you do right now.
A great example of this is a company like Amazon. Will people still be buying stuff off of Amazon in 5 years? Probably. Are there any competitors that could take away Amazon's customer base? Nothing huge. And lastly, is there anything that Amazon is doing right now to enhance their service in the future? Absolutely. Amazon Prime Air expects to have drone delivery by 2023, imagine buying something from the Amazon app and having it delivered by drone within 2 hours.
This is how investors think about investing in the long term. When in doubt, buy stocks of companies you know and try to understand how their business works. The secret to investing it to only invest in things you know; if you don't know how a specific investment tool works (i.e. derivatives), don't sweat it. The best investors don't worry about things they don't know, they stick with the things they do know.