Don't Make This Investing Mistake With Your Roth IRA

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This story is part of CNBC Make It's One-Minute Money Hacks series, which provides easy, straightforward tips and tricks to help you understand your finances and take control of your money.

Opening a Roth IRA, a type of individual retirement account, is one of the best decisions you can make to set your money on the path to tax-free growth.

Roth IRAs are funded with money you've already paid taxes on, so when you withdraw it decades down the line, you get to keep all of your gains.

But the process isn't quite as simple as opening an account and transferring money into it. There's one common mistake first-time investors often run into. Funding your Roth IRA is only the first step — you also need to invest the money.

If you don't allocate the money in your account, it will just sit there and miss out on the valuable growth opportunities provided by compound interest.

Luckily, selecting an investment is easy. Visit your brokerage's website or app to review a number of popular portfolio options with different levels of risk and select the one that you are most comfortable with.

Generally speaking, financial advisors advise that the younger you are the more risk you can have in your portfolio, while the older you are — and the closer you are to needing to access your retirement funds — the better it is to reduce your risk exposure. The thinking is that the more time you have left in your life, the more risk you can comfortably take on. 

Once you have selected your investments, make sure that you are investing as much as you can afford to each year. In 2022, the maximum amount you can contribute to your Roth IRA is $6,000 for people under 50.

From there, sit back and watch your money grow tax-free.

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