Roth IRA Investment Portfolio

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Hey everyone!
I recently opened a Roth IRA and am currently allocating 70% to the S&P 500 and 15% split between Visa and Amex. I'm thinking about adding some treasuries for safety outside of my Roth. What would be the best option—iBonds, EE Bonds, or something else? I want to keep my Roth IRA focused purely on stocks/ETFs since it grows tax-free, and I prefer not to hold any bond funds in it.

Also, would you recommend sticking with individual stocks, or considering a growth ETF like SCHG instead? Or would it be smarter to be more conservative and add an ETF in the consumer staples sector, like XLP? Any recommendations or advice?

Thank you so much!

[arcticpineapplecorp.]

Hey everyone!
I recently opened a Roth IRA and am currently allocating 70% to the S&P 500 and 15% split between Visa and Amex. I'm thinking about adding some treasuries for safety outside of my Roth. What would be the best option—iBonds, EE Bonds, or something else? I want to keep my Roth IRA focused purely on stocks/ETFs since it grows tax-free, and I prefer not to hold any bond funds in it.

Also, would you recommend sticking with individual stocks, or considering a growth ETF like SCHG instead? Or would it be smarter to be more conservative and add an ETF in the consumer staples sector, like XLP? Any recommendations or advice?

Thank you so much!

welcome to the group.

1. 15% of your portfolio in any one stock is too much risk. Experts say if you must gamble with individual stocks you should limit it to like 5% or 10% at most so if those stocks go bust you won't lose 30% of your net worth like you would now.

2. The S&P500 is not the market, it's the US large cap index. But if you want to own the market you'd either want VTI for total US or VT for total World Stock market index fund. I prefer the latter.

3. I Bonds are good because you're guaranteed to keep pace with inflation. Treasuries are fine too.

4. I would not recommend any of your three choices: individual stocks, SCHG or XLP. I've already addressed the problem with individual stocks, you're taking many risks (stock, size, style, sector, country, manager) that are able to be diversified away if you own the market instead.

SCHG is a large cap growth fund. What if value outperforms growth going forward? Whoops. You missed out. If you own the market you have both growth and value. What if small cap or mid cap outperforms large cap going forward? Whoops. You missed out. If you own the market you have both small, mid and large. Why settle for one and possibly underperform the market? Most people think growth outperforms but historically value has outperformed growth, though each will have their day in the sun, which is why you should just own the market instead.

If you own the market by the way, you'll own the stocks that are contained in both SCHG and XLP so why own separate funds that are tilted but missing other pieces when you can own the total market and hold all the stocks you desire? Why overcomplicate this?

the three fund portfolio (total US stock, total International stock and total bond) are really all anybody needs.

But be mindful as you have to put stocks in Roth and taxable and bonds/fixed income in tax deferred accounts (401k) when possible.

read this article by William Bernstein who explains why fewer stocks may be hazardous to your financial wealth:

a grossly disproportionate fraction of the total return came from a very few "superstocks" like Dell Computer, which increased in value over 550 times. If you didn’t have one of the half-dozen or so of these in your portfolio, then you badly lagged the market. (The odds of owing one of the 10 superstocks are approximately one in six.) Of course, by owning only 15 stocks you also increase your chances of becoming fabulously rich. But unfortunately, in investing, it is all too often true that the same things that maximize your chances of getting rich also maximize your chances of getting poor.

If the O’Neal data are generalizable to stocks, and I believe that they are, then even 100 stocks are not nearly enough to eliminate this very important source of financial risk.

So, yes, Virginia, you can eliminate nonsytematic portfolio risk, as defined by Modern Portfolio Theory, with a relatively few stocks. It’s just that nonsystematic risk is only a small part of the puzzle. Fifteen stocks is not enough. Thirty is not enough. Even 200 is not enough. The only way to truly minimize the risks of stock ownership is by owning the whole market.

http://www.efficientfrontier.com/ef/900/15st.htm

don't try to search for the needle in the haystack when you can simply own the whole haystack.

[FoundingFather]

I agree with what Sir Artic Pineapple Corp said.

For equities/stocks, I use VT (total world stock index ETF). Roughly speaking, it includes all the stocks available for purchase in the world. The ~8,000 companies it holds include large, medium and small cap companies, both growth and value, from every sector of the economy, from 47 different countries, including both developed and emerging markets.

For fixed income/bonds, I use TIPS. I buy individual TIPS, but TIPS funds (such as SCHP), or a total bond index fund (such as BND), are both reasonable, solid options.

Because I am younger and accumulating, I hold 80% VT and 20% TIPS. While there are many roads to Dublin, mine sure does give me a lot of time to enjoy the view without distraction or worry.

Founding Father