Holding Individual Stocks in Vanguard Roth IRA?

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Holding Individual Stocks in Vanguard Roth IRA?

Postby ComebackKid » Thu Dec 27, 2012 11:16 am

I am planning on setting up a Roth IRA but was curious about purchasing/holding individual stocks within a Roth. Is this possible with a Vanguard Roth IRA? What are the benefits/drawbacks of doing so? Any and all information will be much appreciated. Thanks.
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Re: Holding Individual Stocks in Vanguard Roth IRA?

Postby livesoft » Thu Dec 27, 2012 11:22 am

It is possible if you use VBS, but I would highly recommend against it. A Roth IRA is very precious long-term tax-free space for investments. You do NOT want to lose money in your Roth IRA because (a) you can't tax-loss harvest it and get a tax deduction and (b) you are limited in annual contributions, so if you lose money, you cannot "top it up" with a new contribution.

And I'll let others tell you about the folly of investing in individual stocks. If you wish to try it, I highly recommend that you use a taxable account where other taxpayers will help pay for your losses.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Holding Individual Stocks in Vanguard Roth IRA?

Postby NYBoglehead » Thu Dec 27, 2012 11:25 am

Holding individual stocks in a Roth IRA is incredibly risky and I would advise against it. With individual stocks you are only accounting scandal, class action lawsuit, or creative destruction in the marketplace away from losing an incredibly amount of money. Lehman Brothers was once all the rage, now it is worthless. Everyone thought Jon Corzine was a genius from his work at Goldman before he took MF Global into bankruptcy.

You are much better off using a 3-fund portfolio strategy. I doubt a single person on this forum would recommend going with individual stocks inside an IRA. If you want to play around with individual stocks treat the money you put into it as consumption and not investing. That way if you lose money it was in the pursuit of a hobby and not in your retirement accounts.
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Re: Holding Individual Stocks in Vanguard Roth IRA?

Postby Wagnerjb » Thu Dec 27, 2012 11:35 am

The issue with individual stocks is that you need a sizable number of different stocks to be adequately diversified. Unless you plan to do that, I would suggest a mutual fund.

Best wishes.
Andy
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Re: Holding Individual Stocks in Vanguard Roth IRA?

Postby NYBoglehead » Thu Dec 27, 2012 11:38 am

Wagnerjb wrote:The issue with individual stocks is that you need a sizable number of different stocks to be adequately diversified. Unless you plan to do that, I would suggest a mutual fund.

Best wishes.


Holding a number of different stocks in an IRA is incredibly hard to do given annual contribution limits.
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