Which ETFs Are Best For a Roth IRA?
ETF investing is an efficient and low-fee way to diversify a portfolio with minimal fees. Investopedia recommends selecting an ETF basket which provides exposure to U.S. stocks, bonds and global investing.
These funds may be purchased in tax-advantaged accounts like Roth IRAs. Some also yield dividends that can be reinvested into your portfolio for even faster growth.
Roth IRA accounts provide tax-deferred growth and are ideal for long-term investments. ETFs offer an efficient and cost-effective means of diversifying across three key asset classes: stocks, bonds and global investing.
IVV invests in the S&P 500 Index, including well-known American companies like Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT). As one of the largest ETFs, this provides broad exposure to some of America’s best companies at an economical cost.
Small-cap stocks have the potential for rapid growth over time and deliver high returns, and this fund offers a more moderate approach among the best ETFs for Roth IRAs, offering bond-like stability. MNA invests in a diverse group of small-cap stocks that reduce company-specific volatility; its top holdings include STORE Capital (NYSE:STOR), Albertsons (NYSE:ACI) and Activision Blizzard (NYSE:ATVI).
2. Vanguard Total Stock Market ETF (VTI)
If you’re using your IRA to invest in stocks, a low-cost index fund like VTI may make the most sense. This ETF covers a substantial part of the U.S. market – including small and mid-cap stocks not covered by S&P 500 index funds.
VTI offers great global exposure, making it an excellent option for investors concerned that political unrest in one country could decimate their stocks overnight. Furthermore, its dividend yields are increasing steadily so you can take advantage of dollar cost averaging and turn $10 into $100,000 over time.
VTI allows investors to own shares in numerous companies ranging from Nestle SA (Swiss Consumer Products) and Tencent Holdings in China, and boasts an expense ratio of just 0.03%, so more of your money goes toward productive uses rather than fees.
3. Vanguard Total Bond Market ETF (VBMFX)
Vanguard Total Bond Market ETF (VBMFX) is an ideal choice for Roth IRA investors. With low expenses and exposure to various bonds, its fees should help it outshout its Morningstar Category peers over time.
The fund is also available as an Exchange-Traded Fund (ETF), which you can utilize in both your taxable brokerage account and IRA.
This name may be deceiving; it doesn’t hold 10,000 bonds as its name would imply. Instead, this fund owns over 8,000 bonds which means it may be over-diversified and more susceptible to interest rate changes than intended. You could mitigate this risk by splitting your VT exposure between VTI and VXUS accounts, with VTI held in an IRA account while VXUS held as a taxable account account.
As you approach retirement, investing in stocks that produce income that is either exempt from or very low in tax (such as dividends). Furthermore, investing in growth-oriented stocks to maximize potential returns should also be a priority.
JEPI tracks the Morningstar US Dividend Growth Index and screens for companies that have successfully increased their dividends over successive years while maintaining stable earnings and reasonable price-to-book and price-to-earnings ratios. It has an expense ratio of 0.38%.
The LVHD ETF targets international companies with sustainable dividend yields while mitigating concentration risk by restricting individual stock holdings to 2.5% and sector weightings at 25%. Among its top holdings are long-standing U.S. blue chip companies like Apple Inc (AAPL), Procter & Gamble Co. (PG), and Johnson & Johnson (JNJ).
With tax filing deadlines approaching, now may be the time to consider whether opening an individual retirement account (IRA). IRAs offer many advantages over regular accounts such as deferred or tax-free growth potential.
Based on your future tax bracket, dividend stocks might be beneficial in an IRA account; one such fund is the iShares Core Global Dividend ETF IVG which invests in companies that pay consistent dividends while simultaneously experiencing dividend growth such as Oracle, Adobe and Microsoft – three top holdings!
With inflation expectations rising and rate-hikes by the Federal Reserve underway, higher yielding stocks should benefit in today’s market environment. Adding foreign dividend stocks to your Roth IRA might also be wise; just take your time researching them thoroughly first!
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