The IRS dictates a few ways in which you can't use the money in your IRA, including lending money to yourself, using it as collateral for a loan and buying real estate for your personal use. Beyond those exceptions, you can invest in just about anything: mutual funds, individual stocks and bonds, annuities and even certain real estate.
It's a good idea to diversify your assets among stocks, bonds and cash. Stocks can provide long-term growth potential, while bonds and cash offer some protection against market setbacks. The allocation that's right for you comes down to how long you'll have your money invested and what sort of short-term ups and downs you're willing to accept in the value of your portfolio. The longer your investment horizon, the more it makes sense to invest in stocks. But if you can't stomach occasional market downturns, you might want to hold a larger share of bonds.
For more on asset allocation, see What's the best way to divide my retirement investments? And for instant advice on how to divvy up your portfolio among different types of stocks and bonds, depending on your particular time horizon and risk tolerance, go to our Asset Allocation tool.