ROTH Fund - Stock or Bond?

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Ohalawa
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ROTH Fund - Stock or Bond?

Post by Ohalawa » Mon Jan 01, 2018 2:44 pm

Wanted your advice on my ROTH fund.

I’m about to add 5500 (Back-Door) to my 35,000 ROTH IRA, which is currently 100% Total Bond Index. This has obviously not yielded much return in the past few years. I’ve been worried about the all time US stock market highs.

Current age: 35
My target retirement date: 2050

Accounting for expense ratios and tax efficiency, does it make more sense to convert my ROTH into Vanguard 2050 Retirement fund? Total US Market? Emerging Market? Stay in Bonds?

Thank you.
"Our life is frittered away by detail. Simplify, simplify." -Thoreau

TG2
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Re: ROTH Fund - Stock or Bond?

Post by TG2 » Mon Jan 01, 2018 3:16 pm

My thought is that one should never put bonds into a Roth. (Disclaimer: I am not a bonds guy anyway and do not hold any regardless.)

Still, gains in a Roth are tax-free as long as you don't screw it up and take them out early. Why would you not want higher-earning assets there instead? As I put it to another poster recently, the space is far too valuable to waste it on low-earning assets. Put stocks into your Roth. Since the gains are tax-free, put things in there that will produce higher gains. If you want to hold bonds, put them in a tax-deferred account where they actually make some sense. Gains there will eventually be taxed, but they won't be taxed nearly as much since the gains will be much lower.

And at your age, even if there is a market crash you have two or three decades to recover from it. I would suggest you are worrying far too much about it, but it is your mindset and your risk aversion that is important here, not mine.

PFInterest
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Re: ROTH Fund - Stock or Bond?

Post by PFInterest » Mon Jan 01, 2018 3:18 pm

Omg no FI in Roth. All stocks.

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Geneyus
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Re: ROTH Fund - Stock or Bond?

Post by Geneyus » Mon Jan 01, 2018 3:24 pm

What about bonds in the target date funds in a Roth account at 35 years old? I don't have a traditional IRA. I'm guessing I'm 8% bonds, but I've considered going 100% stocks due to having 30 more years of work.

exigent
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Re: ROTH Fund - Stock or Bond?

Post by exigent » Mon Jan 01, 2018 3:34 pm

PFInterest wrote:
Mon Jan 01, 2018 3:18 pm
Omg no FI in Roth. All stocks.
In our case, we would have to hold (more) bonds in taxable if we took them out of our retirement accounts. We are 60/40 stocks/bonds and have all available tax-advantaged space filled with bonds, plus some bonds in taxable. All of our equity holdings are in taxable because we can defer taxes on the gains, and the gains will be taxed at favorable rates.

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Ohalawa
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Re: ROTH Fund - Stock or Bond?

Post by Ohalawa » Mon Jan 01, 2018 4:20 pm

Very helpful, thank you.
"Our life is frittered away by detail. Simplify, simplify." -Thoreau

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BolderBoy
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Re: ROTH Fund - Stock or Bond?

Post by BolderBoy » Mon Jan 01, 2018 4:33 pm

Ohalawa wrote:
Mon Jan 01, 2018 2:44 pm
Wanted your advice on my ROTH fund.
I'm of the mind that Roths are ideal for equities by themselves. My r401k and rIRA both contain only Total Stock Market Index.

The argument is that Roth accounts are the last money that you touch, so could grow for an addtional 30+ years after retirement before being tapped (or passed to heirs). Might as well let them have exposure to the largest growth potential.

(my overall AA is 30/70)
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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Ohalawa
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Re: ROTH Fund - Stock or Bond?

Post by Ohalawa » Mon Jan 01, 2018 4:38 pm

FOLLOW-UP: Stock mutual funds in ROTH account is starting to make more sense from tax standpoint. If I look at my stock mutual fund options I see the following exp ratios:

VFIFX (TARGET FUND 2050): exp ratio: 0.16%
VTSAX (TOTAL US MARKET): exp ratio: 0.04%
VTIAX (TOTAL INTERNATIONAL): exp ratio: 0.11%
VEMAX (EMERGING): exp ratio: 0.14%

I was initially thinking about VFIFX (TARGET 2050), isn’t Vanguard just combining 4 mutual funds: Total Stock, Total International, US Bond, International Bond? Is that bump is expense ratio worth the hassle free change in allocation over time. What does that cost look like over a 30 year career? Why aren’t there Admiral Shares for Target Funds like VFIFX?

Now leaning towards creating my own stock allocation in Roth: i.e. VTSAX and VTIAX... :happy
"Our life is frittered away by detail. Simplify, simplify." -Thoreau

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1210sda
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Re: ROTH Fund - Stock or Bond?

Post by 1210sda » Mon Jan 01, 2018 4:54 pm

Depends.

Let's say your have a $100,000 portfolio. 50% in taxable and 50% in tax advantaged, in this case, a Roth IRA. Your desired AA is 50% stocks and 50% bonds.

If you wanted to put the $50,000 stocks in your Roth IRA, you would then have to put your $50,000 of bonds in your taxable account. Not ideal.

The asset location decision should made with the full portfolio in mind, not just one asset class in isolation.

1210

snowman
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Re: ROTH Fund - Stock or Bond?

Post by snowman » Mon Jan 01, 2018 5:02 pm

1210sda wrote:
Mon Jan 01, 2018 4:54 pm
Depends.

Let's say your have a $100,000 portfolio. 50% in taxable and 50% in tax advantaged, in this case, a Roth IRA. Your desired AA is 50% stocks and 50% bonds.

If you wanted to put the $50,000 stocks in your Roth IRA, you would then have to put your $50,000 of bonds in your taxable account. Not ideal.

The asset location decision should made with the full portfolio in mind, not just one asset class in isolation.

1210
I agree with this - it depends. Some people also use Roth as their EF, in which case you might want to own some bonds in it. You need to take a hard look at your overall financial picture before you make the decision.

PFInterest
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Re: ROTH Fund - Stock or Bond?

Post by PFInterest » Mon Jan 01, 2018 5:19 pm

exigent wrote:
Mon Jan 01, 2018 3:34 pm
PFInterest wrote:
Mon Jan 01, 2018 3:18 pm
Omg no FI in Roth. All stocks.
In our case, we would have to hold (more) bonds in taxable if we took them out of our retirement accounts. We are 60/40 stocks/bonds and have all available tax-advantaged space filled with bonds, plus some bonds in taxable. All of our equity holdings are in taxable because we can defer taxes on the gains, and the gains will be taxed at favorable rates.
are you buying ibonds?

exigent
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Re: ROTH Fund - Stock or Bond?

Post by exigent » Mon Jan 01, 2018 5:30 pm

PFInterest wrote:
Mon Jan 01, 2018 5:19 pm
exigent wrote:
Mon Jan 01, 2018 3:34 pm
PFInterest wrote:
Mon Jan 01, 2018 3:18 pm
Omg no FI in Roth. All stocks.
In our case, we would have to hold (more) bonds in taxable if we took them out of our retirement accounts. We are 60/40 stocks/bonds and have all available tax-advantaged space filled with bonds, plus some bonds in taxable. All of our equity holdings are in taxable because we can defer taxes on the gains, and the gains will be taxed at favorable rates.
are you buying ibonds?
Yes.

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