Should I bring bonds into my Roth IRA?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 6:08 am

Good morning Bogleheads,

Currently all of my 32k in my Roth IRA is invested in two funds:
VTSAX $20K
VFFVX $12K

96% stock/4% bond
I have been toying with the idea of bringing in an admiral bond fund, just not sure of:

1.it is right considering I am only 31 years and have at least 29 years until I retire.
2. If I would which admiral bond fund.
3. A downturn doesn't necessary scare me unless I was closer to 60

I'd love to hear your thoughts on this matter and I thank you in advance.

BOND Funds in work sponsored account:
Goldman Sachs FS Government Instl FGTXX .17% expense ratio
NT Agg Bond Index Fund - NL - Tier 3 .04% expense ratio
Seix Intermediate Bond Fund .17% expense ratio


All of the funds offered:

Goldman Sachs Financial Square Government Fund - FST Class $1.000000 0.00 0.0000 $0.00 N/A
Northern Trust Aggregate Bond Index Fund - Non Lending - Tier 3 $123.140000 -0.25 0.0000 $0.00 N/A
Seix Intermediate Bond Fund $22.443800 -0.03 0.0000 $0.00 N/A
JPMCB SmartRetirement 2020 Fund - CF B $19.080000 0.09 0.0000 $0.00 N/A
JPMCB SmartRetirement 2025 Fund - CF B $19.560000 0.14 0.0000 $0.00 N/A
JPMCB SmartRetirement 2030 Fund - CF B $20.070000 0.18 0.0000 $0.00 N/A
JPMCB SmartRetirement 2035 Fund - CF B $20.250000 0.22 0.0000 $0.00 N/A
JPMCB SmartRetirement 2045 Fund - CF B $20.550000 0.27 0.0000 $0.00 N/A
JPMCB SmartRetirement 2055 Fund - CF B $20.580000 0.27 0.0000 $0.00 N/A
JPMCB SmartRetirement 2060 Fund - CF B $18.110000 0.24 0.0000 $0.00 N/A
JPMCB SmartRetirement Income Fund - Investment Class $12.243900 0.05 0.0000 $0.00 N/A
American Century Global Growth ACWI Trust Tier 1 $14.546200 0.23 0.0000 $0.00 N/A
Columbia Dividend Value Fund $23.110800 0.40 0.0000 $0.00 N/A
Northern Trust Extended Equity Market Index Fund - DC Non Lending - Tier 3 $208.100000 5.22 0.0000 $0.00 N/A
FIAM Select International Plus-Commingled Pool $13.657500 0.11 0.0000 $0.00 N/A
American Century Small Cap Value Fund $38.131900 1.00 0.0000 $0.00 N/A
Northern Trust ACWI ex US Index Fund DC Non Lending - Tier Three $150.920000 1.18 0.0000 $0.00 N/A
WTC-CIF II (Series 4) Portfolio $9.920000 0.23 0.0000 $0.00 N/A
Last edited by Frugalbear on Wed Jun 05, 2019 10:50 am, edited 2 times in total.

Silk McCue
Posts: 3859
Joined: Thu Feb 25, 2016 7:11 pm

Re: Should I bring bonds into my Roth IRA?

Post by Silk McCue » Wed Jun 05, 2019 6:26 am

At your age I woudn't hold any bond in your Roth given the time horizon. As long as you can stomach the multiple market machinations over the coming decades you will be just fine. My advice is to put your bonds in tax deferred.

We are 58/60 and we have zero bonds in our Roth's and converting and contributing more each year. Our total holdings match our need, willingness and ability to take risk today and across the next 30+ years.

Cheers

lakpr
Posts: 3504
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I bring bonds into my Roth IRA?

Post by lakpr » Wed Jun 05, 2019 6:44 am

No bonds in Roth IRA. The defining feature of Roth accounts is that the future growth is all tax free. To maximize that advantage, I will suggest putting all stocks in the Roth account. All VTSAX, not even VFFVX.

That said, everyone should have some bonds in their portfolio. It can be as little as 10%. But all bonds belong in tax deferred accounts, say your 401k (if you have access to one). This is to provide some stability to the overall portfolio and smooth out wild swings.

Userdc
Posts: 270
Joined: Tue Jun 21, 2011 9:30 am

Re: Should I bring bonds into my Roth IRA?

Post by Userdc » Wed Jun 05, 2019 7:16 am

As long as you tax-adjust your different account types, I don’t think it matters if you own bonds in tax-deferred or Roth accounts.

1. Figure out your total asset allocation bonds v stocks
2. Multiply your taxable and tax-deferred by a percentage equal to the percentage of those accounts you expect to receive on a post-tax basis when you withdraw from them. Roth gets counted at 100%.

Once you do that, there’s no magic to the Roth where it’s better to own bonds there instead of tax-deferred.

Personally, I spread out my bond allocation among taxable (munis), Roth, and tax-deferred to diversify against future tax unknowns, but the number I’m really focused on is the total tax-adjusted bond allocation.

Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Re: Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 8:33 am

lakpr wrote:
Wed Jun 05, 2019 6:44 am
No bonds in Roth IRA. The defining feature of Roth accounts is that the future growth is all tax free. To maximize that advantage, I will suggest putting all stocks in the Roth account. All VTSAX, not even VFFVX.

That said, everyone should have some bonds in their portfolio. It can be as little as 10%. But all bonds belong in tax deferred accounts, say your 401k (if you have access to one). This is to provide some stability to the overall portfolio and smooth out wild swings.
Thank you very much for your advice. I have been pushing the idea around of getting rid of VFFX because that was the account i started in because it being only a 1000 to start. At any rate, I called up vanguard and I am completely VTSAX now!

lakpr
Posts: 3504
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I bring bonds into my Roth IRA?

Post by lakpr » Wed Jun 05, 2019 8:49 am

Frugalbear wrote:
Wed Jun 05, 2019 8:33 am
lakpr wrote:
Wed Jun 05, 2019 6:44 am
No bonds in Roth IRA. The defining feature of Roth accounts is that the future growth is all tax free. To maximize that advantage, I will suggest putting all stocks in the Roth account. All VTSAX, not even VFFVX.

That said, everyone should have some bonds in their portfolio. It can be as little as 10%. But all bonds belong in tax deferred accounts, say your 401k (if you have access to one). This is to provide some stability to the overall portfolio and smooth out wild swings.
Thank you very much for your advice. I have been pushing the idea around of getting rid of VFFX because that was the account i started in because it being only a 1000 to start. At any rate, I called up vanguard and I am completely VTSAX now!
👍🏿

Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Re: Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 9:00 am

Silk McCue wrote:
Wed Jun 05, 2019 6:26 am
At your age I woudn't hold any bond in your Roth given the time horizon. As long as you can stomach the multiple market machinations over the coming decades you will be just fine. My advice is to put your bonds in tax deferred.

We are 58/60 and we have zero bonds in our Roth's and converting and contributing more each year. Our total holdings match our need, willingness and ability to take risk today and across the next 30+ years.

Cheers
I added the bonds to my work sponsored program above in original post. Let me know your thoughts

Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Re: Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 9:01 am

lakpr wrote:
Wed Jun 05, 2019 8:49 am
Frugalbear wrote:
Wed Jun 05, 2019 8:33 am
lakpr wrote:
Wed Jun 05, 2019 6:44 am
No bonds in Roth IRA. The defining feature of Roth accounts is that the future growth is all tax free. To maximize that advantage, I will suggest putting all stocks in the Roth account. All VTSAX, not even VFFVX.

That said, everyone should have some bonds in their portfolio. It can be as little as 10%. But all bonds belong in tax deferred accounts, say your 401k (if you have access to one). This is to provide some stability to the overall portfolio and smooth out wild swings.
Thank you very much for your advice. I have been pushing the idea around of getting rid of VFFX because that was the account i started in because it being only a 1000 to start. At any rate, I called up vanguard and I am completely VTSAX now!
👍🏿
I added the bonds that i have available in my works sponsored plan in my original post. Let me know your thoughts

retiredjg
Posts: 39022
Joined: Thu Jan 10, 2008 12:56 pm

Re: Should I bring bonds into my Roth IRA?

Post by retiredjg » Wed Jun 05, 2019 9:03 am

Frugalbear wrote:
Wed Jun 05, 2019 6:08 am
Goldman Sachs FS Government Instl FGTXX .17% expense ratio
NT Agg Bond Index Fund - NL - Tier 3 .04% expense ratio
Seix Intermediate Bond Fund .17% expense ratio
I'd use the second one - total bond market. The other two should be fine too.

When choices are easy, I like to limit or eliminate bonds in Roth IRA.
Last edited by retiredjg on Wed Jun 05, 2019 9:28 am, edited 1 time in total.

lakpr
Posts: 3504
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I bring bonds into my Roth IRA?

Post by lakpr » Wed Jun 05, 2019 9:08 am

+1 to this. You are very fortunate with your workplace plan indeed! Rare to find bond funds with such low expense ratios in 401k plans. I work for a MegaCorp, the only pure bond fund I have is Metropolitan West Total Return bond fund with a 0.39% expense ratio.

You cannot go wrong picking ANY of those three bond funds for your portfolio.

Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Re: Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 9:28 am

retiredjg wrote:
Wed Jun 05, 2019 9:03 am
Frugalbear wrote:
Wed Jun 05, 2019 6:08 am
NT Agg Bond Index Fund - NL - Tier 3 .04% expense ratio
Seix Intermediate Bond Fund .17% expense ratio
I'd use the first one - total bond market. The other one should be fine too.

When choices are easy, I like to limit or eliminate bonds in Roth IRA.
What should by bonds to stocks ratio look like in a tax deferred account? Also, I am just contributing up to the match (6% matching 6%), I was doing 10% ...4% over the maximum match

retiredjg
Posts: 39022
Joined: Thu Jan 10, 2008 12:56 pm

Re: Should I bring bonds into my Roth IRA?

Post by retiredjg » Wed Jun 05, 2019 9:29 am

Frugalbear wrote:
Wed Jun 05, 2019 9:28 am
retiredjg wrote:
Wed Jun 05, 2019 9:03 am
Frugalbear wrote:
Wed Jun 05, 2019 6:08 am
NT Agg Bond Index Fund - NL - Tier 3 .04% expense ratio
Seix Intermediate Bond Fund .17% expense ratio
I'd use the first one - total bond market. The other one should be fine too.

When choices are easy, I like to limit or eliminate bonds in Roth IRA.
What should by bonds to stocks ratio look like in a tax deferred account? Also, I am just contributing up to the match (6% matching 6%), I was doing 10% ...4% over the maximum match
It does not matter what ratio you have in 1 specific account. You can spread the ratios out over all the accounts.

Note that I edited my earlier post to include the third bond fund as Ok

Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Re: Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 10:06 am

retiredjg wrote:
Wed Jun 05, 2019 9:29 am
Frugalbear wrote:
Wed Jun 05, 2019 9:28 am
retiredjg wrote:
Wed Jun 05, 2019 9:03 am
Frugalbear wrote:
Wed Jun 05, 2019 6:08 am
NT Agg Bond Index Fund - NL - Tier 3 .04% expense ratio
Seix Intermediate Bond Fund .17% expense ratio
I'd use the first one - total bond market. The other one should be fine too.

When choices are easy, I like to limit or eliminate bonds in Roth IRA.
What should by bonds to stocks ratio look like in a tax deferred account? Also, I am just contributing up to the match (6% matching 6%), I was doing 10% ...4% over the maximum match
It does not matter what ratio you have in 1 specific account. You can spread the ratios out over all the accounts.

Note that I edited my earlier post to include the third bond fund as Ok
Yes I see that and will probably go with the one with the lowest expense ration...here are the other funds I am in:

JPMCBSmartRetirement®2050 Fund .39% expense ratio
T Ext Equity Mkt Idx Fd - DC - NL - T3 .05% expense ratio
Voya Small Cap Growth Trust Fund - Class 4 .69% expense ratio

retiredjg
Posts: 39022
Joined: Thu Jan 10, 2008 12:56 pm

Re: Should I bring bonds into my Roth IRA?

Post by retiredjg » Wed Jun 05, 2019 10:11 am

I think you may have some better choices? The Small cap growth fund could disappear easily. :happy And there is no reason to have a target fund and individual funds at the same time.

Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Re: Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 10:45 am

retiredjg wrote:
Wed Jun 05, 2019 10:11 am
I think you may have some better choices? The Small cap growth fund could disappear easily. :happy And there is no reason to have a target fund and individual funds at the same time.
maybe ill just go with the target date 50% and bond 50%... everything else is small cap stuff

Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Re: Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 10:47 am

retiredjg wrote:
Wed Jun 05, 2019 10:11 am
I think you may have some better choices? The Small cap growth fund could disappear easily. :happy And there is no reason to have a target fund and individual funds at the same time.
i found one other fund that looks appealing:

NT S&P 500 Index Fund - DC - NL - Tier 3 .02% expense ratio


So that fund and a bond fund 50/50?

lakpr
Posts: 3504
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I bring bonds into my Roth IRA?

Post by lakpr » Wed Jun 05, 2019 10:49 am

Frugal bear,

retiredjg is asking that you provide the full list of all choices in your workplace plan along with their ticket symbols if available, but definitely the expense ratios.

Secondly, no reason to hold bonds separately within the plan if you are including the life cycle / target retirement funds. The way to increase bonds percentage is to choose an earlier target date fund than one that coincides with your actual retirement.

Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Re: Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 10:51 am

lakpr wrote:
Wed Jun 05, 2019 10:49 am
Frugal bear,

retiredjg is asking that you provide the full list of all choices in your workplace plan along with their ticket symbols if available, but definitely the expense ratios.

Secondly, no reason to hold bonds separately within the plan if you are including the life cycle / target retirement funds. The way to increase bonds percentage is to choose an earlier target date fund than one that coincides with your actual retirement.
Please see orginal post... i added them

lakpr
Posts: 3504
Joined: Fri Mar 18, 2011 9:59 am

Re: Should I bring bonds into my Roth IRA?

Post by lakpr » Wed Jun 05, 2019 11:06 am

I see them now.

Some of that formatting is a bit unreadable, or perhaps I am misunderstanding. Is the Extended Market Index fund really having a 5.22% expense ratio? 😳

Given that the max you can contribute per year is $25000 ($19k for 401k and $6k for Roth), assuming a 10% bonds allocation would mean $2500 per year in bonds. Within the 401k, that $2500 would represent 13% of the $19k contribution.

Therefore, not exactly 50:50, but I would direct your contributions 85% to the S&P 500 fund and 15% to the Total bond market index fund.

If you desire a 15% bond exposure instead, $3750 in $19k total contribution = 19.7%. In this case I would split the contribution as 80% to the S&P 500 fund and 20% to the bond fund.

Rebalance after 5 years.

You said previously you are only contributing to the match. I would suggest you max out the pretax contribution to the full extent of $19k, unless that means you really cannot meet daily cash flow obligations.

Lee_WSP
Posts: 1408
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Should I bring bonds into my Roth IRA?

Post by Lee_WSP » Wed Jun 05, 2019 11:55 am

Unless you're trying to time the market, different topic altogether, no. Only growth assets in Roth.

retiredjg
Posts: 39022
Joined: Thu Jan 10, 2008 12:56 pm

Re: Should I bring bonds into my Roth IRA?

Post by retiredjg » Wed Jun 05, 2019 1:14 pm

Frugalbear, we are not going to get anywhere fast playing 1000 questions about your situation. :( If you want help with your portfolio, you need to tell us things like your tax bracket, your age, your spouse's accounts if you have one, the size of each account in relation to the others, how much you plan to save each year.

Most importantly, what stock to bond ratio you want for your retirement portfolio. Looking at your portfolio and your questions, I don't think you have a strong idea about that decision yet. Telling us more about your situation can help us help you.

See the format listed in the link at the bottom of this message. Those are the things we need to help people with their portfolios. The closer you follow the format, the easier it is to help you. It is some work but you will learn a lot by gathering and presenting that information.

As an example, it does no good to say "hold this in the 401k and hold that in the Roth IRA" if we don't know how big each account is. The answer would be different if your portfolio is 90% 401k vs 90% Roth IRA vs half 401k and half Roth IRA.

Topic Author
Frugalbear
Posts: 83
Joined: Sun Jun 02, 2019 7:35 am

Re: Should I bring bonds into my Roth IRA?

Post by Frugalbear » Wed Jun 05, 2019 1:55 pm

lakpr wrote:
Wed Jun 05, 2019 11:06 am
I see them now.

Some of that formatting is a bit unreadable, or perhaps I am misunderstanding. Is the Extended Market Index fund really having a 5.22% expense ratio? 😳

Given that the max you can contribute per year is $25000 ($19k for 401k and $6k for Roth), assuming a 10% bonds allocation would mean $2500 per year in bonds. Within the 401k, that $2500 would represent 13% of the $19k contribution.

Therefore, not exactly 50:50, but I would direct your contributions 85% to the S&P 500 fund and 15% to the Total bond market index fund.

If you desire a 15% bond exposure instead, $3750 in $19k total contribution = 19.7%. In this case I would split the contribution as 80% to the S&P 500 fund and 20% to the bond fund.

Rebalance after 5 years.

You said previously you are only contributing to the match. I would suggest you max out the pretax contribution to the full extent of $19k, unless that means you really cannot meet daily cash flow obligations.
Thank you for the direction, I appreciate it....80/20 sounds good in the 401k pretax and 100% stock in ROTH IRA

Post Reply