A Roth IRA offers numerous benefits for investors, including tax-free withdrawals in retirement. To make the most of this powerful retirement savings tool, it's important to choose the right investments. Here are some of the best funds and strategies to hold in a Roth IRA.
Index Funds and ETFs
Index funds and exchange-traded funds (ETFs) are a popular choice for Roth IRA investors because they offer low fees and broad diversification. An index fund is a type of mutual fund that tracks a specific market index, such as the S&P 500. ETFs are similar but trade like stocks on an exchange. Both options provide exposure to a wide range of stocks or bonds, making them ideal for long-term investors who want to minimize risk.
Vanguard Total Stock Market Index Fund (VTSMX)
The Vanguard Total Stock Market Index Fund is a popular choice for investors looking for broad exposure to the U.S. stock market. This index fund tracks the performance of the CRSP US Total Market Index, which includes large, mid, and small-cap stocks. With a low expense ratio of just 0.14%, this fund is an excellent choice for Roth IRA investors.
Schwab U.S. Large-Cap ETF (SCHX)
For investors who prefer ETFs, the Schwab U.S. Large-Cap ETF is a top pick. This fund tracks the performance of the Dow Jones U.S. Large-Cap Total Stock Market Index, which includes the 750 largest U.S. stocks. With an expense ratio of just 0.03%, this ETF is one of the lowest-cost options available.
International Funds
To diversify beyond the U.S. market, Roth IRA investors should consider adding international funds to their portfolio. These funds provide exposure to foreign stocks and bonds, which can help reduce overall portfolio risk.
Vanguard Total International Stock Index Fund (VGTSX)
The Vanguard Total International Stock Index Fund is a great choice for investors looking to add international exposure to their Roth IRA. This fund tracks the performance of the FTSE Global All Cap ex US Index, which includes stocks from developed and emerging markets outside the U.S. With an expense ratio of just 0.17%, this fund is a low-cost way to diversify beyond U.S. stocks.
iShares Core MSCI EAFE ETF (IEFA)
For investors who prefer ETFs, the iShares Core MSCI EAFE ETF is a top pick. This fund tracks the performance of the MSCI EAFE Index, which includes stocks from developed markets outside the U.S. With an expense ratio of just 0.07%, this ETF is an affordable way to add international exposure to a Roth IRA.
Bond Funds
To reduce portfolio risk and provide income in retirement, Roth IRA investors should consider adding bond funds to their portfolio. These funds invest in a variety of fixed-income securities, such as government bonds and corporate bonds.
Vanguard Total Bond Market Index Fund (VBTLX)
The Vanguard Total Bond Market Index Fund is a popular choice for investors looking for broad exposure to the U.S. bond market. This index fund tracks the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which includes investment-grade bonds from the U.S. government and corporations. With an expense ratio of just 0.05%, this fund is an excellent choice for Roth IRA investors.
iShares Core U.S. Aggregate Bond ETF (AGG)
For investors who prefer ETFs, the iShares Core U.S. Aggregate Bond ETF is a top pick. This fund tracks the performance of the Bloomberg Barclays U.S. Aggregate Bond Index, which includes investment-grade bonds from the U.S. government and corporations. With an expense ratio of just 0.05%, this ETF is a low-cost way to add bond exposure to a Roth IRA.
Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are a unique type of investment that can provide diversification and income to a Roth IRA portfolio. REITs invest in real estate properties and pay out a portion of their income to investors in the form of dividends.
Vanguard Real Estate ETF (VNQ)
The Vanguard Real Estate ETF is a great choice for investors looking to add REIT exposure to their Roth IRA. This ETF tracks the performance of the MSCI US Investable Market Real Estate 25/50 Index, which includes a variety of U.S. REITs. With an expense ratio of just 0.12%, this ETF is a low-cost way to add real estate exposure to a Roth IRA.
Conclusion
Investing in a Roth IRA can be an excellent way to save for retirement and maximize your tax benefits. By choosing the right investments, you can build a diversified portfolio that provides income and growth over the long term. Whether you prefer index funds, ETFs, or other types of investments, there are plenty of options available to Roth IRA investors. By doing your research and working with a financial advisor, you can build a portfolio that meets your needs and helps you achieve your retirement goals.
Ticker symbols: VTSMX, SCHX, VGTSX, IEFA, VBTLX, AGG, VNQ.
