Which ETFs Are Best For a Roth IRA?
Roth individual retirement accounts offer many advantages over taxable accounts for investments that produce tax-free income such as dividend stock funds. As such, keeping them within your Roth is more advantageous.
Consider your goals, risk tolerance and time horizon when selecting ETFs for your Roth account. Your ultimate goal should be finding funds with balanced growth and diversification combined with low costs and tax efficiency.
1. Vanguard Total Stock Market ETF (NYSEARCA:VTI)
Vanguard estimates that investing $500 a month over 35 years could result in over $1.15 million being in an ETF investment fund — which will remain tax-deferred until you withdraw it as retirement savings.
The fund tracks the CRSP Total Stock Market Index, which encompasses virtually all U.S. publicly traded companies and can help reduce sector-specific risk in your portfolio.
VTI is one of the least-expensive ETFs available, boasting an extremely low expense ratio that puts most of your money toward building wealth. Plus, it forms part of Vanguard’s LifeStrategy and Target Retirement Fund series – which gradually adjusts your asset allocation towards a 20/80 equity/bond mix when retirement comes.
Roth IRAs provide an ideal vehicle to hold stocks that appreciate over time. Look for funds with low investment fees and broad market exposure, as well as those featuring mature companies that pay quarterly dividends.
Exchange-traded funds (ETFs) that track major market indexes can provide low investment fees while still providing diversification benefits and lower ongoing expenses than mutual funds.
REITs offer another means to gain exposure to real estate without all of the hassles and costs involved with buying, selling and managing properties yourself. Furthermore, municipal bond funds offer exempted interest income; high-yield bond funds should be limited as potential risks to your portfolio.
iShares Core S&P Small-Cap ETF provides investors with an efficient and cost-effective means of accessing small cap stocks, boasting low fees and impressive portfolio diversification.
Roth IRAs are designed for long-term buy-and-hold investing, so it makes sense that when selecting your investments for this account you should choose funds with long-term exposure to the market.
Risk is an integral component of investing, but shouldn’t discourage those with the discipline necessary to stay invested for the long haul. iShares Core S&P Small-Cap ETF is an excellent option for long-term investors willing to accept some short-term volatility as part of building out a diversified Roth IRA portfolio. Before making their decisions on investing, prospective investors should carefully examine each Fund’s investment objectives, risks, charges and expenses (found within its prospectuses or summary prospectuses) prior to investing.
iShares Core S&P Mid-Cap ETF (NYSEARCA:IJR) tracks the S&P 400 index. With nearly 400 stocks held across its portfolio and 8.1% represented as top-10 holdings by total assets, this fund boasts low concentration risk.
Although its long-term performance lags behind that of mid-cap peers such as SCHM and VO, it provides investors with a solid way to invest in this category.
Investment options available to Roth investors range from seven equities funds tied for first place, bond and global investing funds as well as iShares ETFs are an efficient way of accessing these important categories. 2023 BlackRock Inc reserves all rights. BLACKROCK SOLUTIONS, iSHARES ALADDIN and BUILD ON BLACKROCK are registered trademarks owned by BlackRock Inc in the US and other jurisdictions.
The iShares Core U.S. Aggregate Bond ETF (NYSEARCA:AGG) tracks the performance of leading US dollar-denominated investment-grade bonds. Its assets are spread among several different categories, including US Treasuries, corporate bonds and agency mortgage-backed securities.
This fund features a low total risk index rating of 0.41, making it less volatile than average ETFs in its category. Furthermore, its expense ratio of just 0.03% makes it very cost-competitive with other ETFs; however, high portfolio turnover may incur increased expenses and reduced after-tax returns. Vantage offers CFD trading on AGG and other leading ETFs so you can gain exposure to price movements without purchasing actual fund shares; learn more in our CFDs guide.
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