ROTH IRA - Bonds or Equities

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TheAnalyzer08
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ROTH IRA - Bonds or Equities

Post by TheAnalyzer08 » Fri Nov 02, 2018 10:38 am

People have different opinions as to how they invest their Roth IRA. Some say bonds. Some say equities, since you are earning tax free returns.

Where is you Roth IRA invested and why?

This is only one part of my overall retirement portfolio. I also have a governmental 457b, 401k, and a defined benefit pension.

Thanks for the responses.

PugetSoundguy
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Re: ROTH IRA - Bonds or Equities

Post by PugetSoundguy » Fri Nov 02, 2018 10:54 am

The conventional approach is to put mostly equities in a Roth due to the greater potential for long-term tax-free gains. Hard to argue with that.

But for me, I am about 60-40 in the Roth with the 40 percent bonds being TIPS because inflation-adjusted bonds are not an option in my other tax-advantaged space.

John Z
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Re: ROTH IRA - Bonds or Equities

Post by John Z » Fri Nov 02, 2018 10:56 am

Yes, put the highest potential return equities in Roth since all profits are tax free. Wife and I have our Roths filled with VG Small Cap Growth Index and VG Small Cap Index.

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Earl Lemongrab
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Re: ROTH IRA - Bonds or Equities

Post by Earl Lemongrab » Fri Nov 02, 2018 1:36 pm

Unless you're a lot like me, then asking what I do isn't terribly helpful, but here goes. In my case, the Roth is about 15% of the overall portfolio and that only because of Mega Backdoor. Initially it was all REIT, because I couldn't get that in the 401(k). As the assets in Roth increased, I added value funds and some other things as opportunity arose. All of the fixed income is in the 401(k).
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billfromct
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Re: ROTH IRA - Bonds or Equities

Post by billfromct » Fri Nov 02, 2018 1:58 pm

It depends on your age/years until retirement & risk tolerance.

I probably will not use my Roth IRA & it will be inherited by my kids, so I am 100% stocks.

I have advised my kids (mid/late 20s) to be 100% stocks in their Roth IRA & to convert to an appropriate target date retirement fund when they turn 45-50, 15-20 years before retirement. Very aggressive & others will recommend at least 20% bonds for younger folks ramping up to 40%-50% bonds in retirement.

I will be taking RMDs & SS next year and i am about 60%/40% in my other retirement accounts (rollover IRA).

I looked at the S&P 500 from 1940 to 2016, including it's predesessor before 1957 when it went to 500 stocks, and the S&P 500 had a positive return in 75% of those years. Of course past performance is no guarantee of future results.

I would recommend an appropriate amount (15%-20%) of fixed income in your taxable account so you can access the money should it be needed.

bill

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Taj_Mahalo
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Re: ROTH IRA - Bonds or Equities

Post by Taj_Mahalo » Fri Nov 02, 2018 3:37 pm

Like Bill mentioned, it depends on your age/time horizon for when (and if) you plan to use those funds. If you'd like to share that information then I'm sure the Bogleheads can help. I learned, as others already stated, that in general you want to keep stocks in the Roth IRA so that it can grow tax-free. I started my rIRA this year with Vanguard and am 100% in VTSMX (converting to Admiral early 2019) and my wife will have VGTSX.
Income is not wealth. Wealth is not income. Both are equally as important and either is capable of producing the other.

Pigeye Brewster
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Re: ROTH IRA - Bonds or Equities

Post by Pigeye Brewster » Fri Nov 02, 2018 6:54 pm

100% VTSAX for both Roth IRA (his and hers) and mega backdoor Roth 401(k) (his).

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GerryL
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Re: ROTH IRA - Bonds or Equities

Post by GerryL » Fri Nov 02, 2018 7:14 pm

This year, as I was approaching my 70th birthday, with SS starting and then RMDs soon to follow, I had a CFP at Vanguard review my plan (which they had helped me with 5 years earlier). I am 60/40 with my retirement funds in a basic 4-fund portfolio. I won't need to tap the Roth, which is about 20% of my retirement funds, to cover my expenses or possibly ever while I am alive. The advisor recommended using it to hold the bulk of my international stocks, instead of the Total Stock Fund, which was what I had in it. I followed that recommendation.

retiredjg
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Re: ROTH IRA - Bonds or Equities

Post by retiredjg » Fri Nov 02, 2018 7:22 pm

All other things being equal, I'd choose to have my Roth IRA invested in stocks or mostly stocks.

Sometimes, all other things are not equal. In cases like that, this question is kind of moot. Don't think of this account or that account. Think of how you can achieve the best overall portfolio.

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grabiner
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Re: ROTH IRA - Bonds or Equities

Post by grabiner » Fri Nov 02, 2018 10:01 pm

From a tax standpoint, it doesn't make much difference; see Tax-adjusted asset allocation on the wiki. If you will retire in a 25% tax bracket, $4000 in a traditional IRA and $3000 in a Roth IRA have exactly the same after-tax value if invested the same way, so there is little reason to invest in one in bonds or stocks.

But there are often non-tax reasons. If your 401(k) has better stock than bond funds, you should hold your bonds in some account other than the 401(k); this could be a Roth IRA, or a taxable account. Conversely, if your 401(k) is lacking a stock fund of a type you want to hold, that needs to be held in another account (and if it is real estate, that needs to be in the IRA, not the taxable account, because REITs are tax-inefficient).

My own Roth IRA is entirely stock, but that is because I use it to hold stock that I can't hold in my employer plans; I hold all my bonds in employer plans.
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Miriam2
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Re: ROTH IRA - Bonds or Equities

Post by Miriam2 » Fri Nov 02, 2018 11:17 pm

billfromct wrote: It depends on your age/years until retirement & risk tolerance. . . . I have advised my kids (mid/late 20s) to be 100% stocks in their Roth IRA & to convert to an appropriate target date retirement fund when they turn 45-50, 15-20 years before retirement. Very aggressive & others will recommend at least 20% bonds for younger folks ramping up to 40%-50% bonds in retirement. . . .
Bill - although your kids are 100% stocks in their Roth IRAs, which makes sense to me, what are you suggesting their allocation be in their 401k's and HSA's and taxable accounts?

3funder
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Re: ROTH IRA - Bonds or Equities

Post by 3funder » Sat Nov 03, 2018 12:09 pm

My wife and I fill ours with equities.

Index24
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Re: ROTH IRA - Bonds or Equities

Post by Index24 » Sat Nov 03, 2018 4:30 pm

Equities :sharebeer

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oldcomputerguy
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Re: ROTH IRA - Bonds or Equities

Post by oldcomputerguy » Sat Nov 03, 2018 4:49 pm

Our Roths are a minor portion of our holdings (approx. 7% of total), and are 100% total market stock funds. All bonds are in tax-deferred.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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