A traditional Individual Retirement Account, or IRA, is a personal savings account you can open with your bank or other financial institution. The average return you can expect to earn on your IRA will depend on the types of assets you choose to invest inside your IRA account.
Traditional IRA Assets
The government places few restrictions on the types of assets you can own inside your IRA, though you cannot hold collectibles, such as jewelry, artwork and other similar tangible assets. You can, however, invest in non-tangible assets, such as stocks, bonds, mutual funds and other financial securities. Investments held inside an IRA account are allowed to grow tax-free until you begin to withdraw money from your account. If you withdraw money from your account before you turn age 59 1/2, you may incur an early withdrawal penalty in addition to ordinary income tax.
IRA Stock Accounts
Traditionally, stocks have offered the highest rate of return among all other asset classes over time, making them a popular investment for people saving for retirement. The average rate of return on stocks depends on the size of the company you choose to invest in. According to January 2011 data provided by New York University, large company stock, such as IBM and Apple Computer, have earned an average annual rate of return of 11.31 percent since 1928. According to the study "Historical Behavior of Asset Returns performed by Duke University, small company stocks have grown at a rate of 16 percent per year since 1925.
IRA Bond Accounts
While stocks earn a higher rate of return over time, they can experience bad years and even bad decades where investors can lose money. Bonds offer lower returns over time, but they produce relatively steady returns from one year to the next. According to the New York University study, since 1928, bonds have earned investors an average of 5.28 percent per year.
Getting More Aggressive
The rate of return you can expect from your investments is closely related to how much risk you are willing to assume. The riskier an investment, the higher the potential you can lose money over the short run. For investors who have several decades or more to allow their investments to grow, international investments offer the highest rates of return over time. According to Duke University, investors who invested in Asian company stocks have earned as much as 19 percent per year since 1970, and Latin American investors have earned as much as 28 percent per year since that same year.
Donald Harder has been writing financial-related articles since 2000 when he founded the firm Securities Research Services. He has worked as a speech writer for the U.S. Department of Justice and written white papers and studies for the U.S. Department of Housing and Urban Development. Harder holds a Master of Arts in international affairs from George Washington University.