Which ETFs Are Good For Roth IRA?
IRAs provide the perfect home for dividend stocks that can compound over time without incurring tax liabilities, as well as funds producing income that is either tax exempt or highly tax efficient such as municipal bonds and real estate investment trust (REIT) funds.
Roth IRA investors seeking optimal ETF investments should select those which provide exposure across three key categories – U.S. stocks, bonds and global investing.
1. iShares Core S&P 500 ETF (IVV)
When saving for retirement, having multiple tax-treated accounts that allow for optimal investments depending on your financial goals may be wise. One popular solution is a Roth IRA.
Roth IRAs are intended for long-term growth, so investing in stocks may be an attractive option. This fund from iShares provides an easy and low expense ratio option to build a diversified portfolio with plenty of growth potential that should outshone that of the stock market over time. You could further diversify your IRA with ETFs that match your financial circumstances, risk tolerance and investment time frame like:
2. Vanguard Total Stock Market ETF (VTI)
IRAs allow you to invest after-tax dollars tax-free, making VTI the ideal stock ETF to maximize returns over time. When withdrawing in retirement, withdrawals won’t incur additional taxes either.
Roth IRA funds that offer superior returns feature diversified stock portfolios with minimal ETF expenses, so that investors can take advantage of long-term growth while mitigating unnecessary risk.
This ETF follows the CRSP US Total Stock Market Index, comprising nearly 4,000 stocks – making it possible to monitor nearly every publicly listed U.S. company with just one ETF. Furthermore, it shares many similarities with Vanguard Small-Cap Value ETF (VTSAX).
3. Vanguard Total Bond Market ETF (BND)
BND ETF is an ideal asset to hold in a Roth IRA to provide protection from market downturns. The fund tracks the Barclays U.S. Aggregate Bond Index Float-Adjusted which serves as the benchmark of domestic bonds markets; among its holdings are government securities, mortgage bonds, asset-backed securities and corporate bonds.
Each month, BND provides investors with a dividend payment consisting of interest income and any realized capital gains (if applicable). This payout resembles what an investor might get by holding bonds in their portfolio.
As Roth IRAs are tax-exempt investments, it’s critical that investors select ETFs that produce consistent streams of income – BND is one of the top performing bond funds on the market and fits this bill perfectly.
4. Vanguard Total International Stock ETF (VTWAX)
If you want an affordable global fund that covers every corner, this Vanguard mutual fund may be one of the best choices for your Roth IRA. It is currently home to over 8,000 stocks from all around the globe – such as Nestle (NSRGY) and Tencent Holdings (TCEHY).
At only 4% portfolio turnover rate, it offers low expenses compared to similar funds in its category. Morningstar gave it an A rating, which grades funds on their relative returns against their peers.
Schwab Intelligent Portfolios can assist those who lack the time or energy to research individual stocks and bonds individually in creating an appropriate retirement portfolio that matches your specific retirement needs.
5. Vanguard Balanced ETF (VBIAX)
VBIAX provides investors with a moderate risk tolerance and/or retirement in mind with access to both stocks and bonds, following two different indexes for its stock allocation (CRSP US Total Market Index and Bloomberg U.S. Aggregate Float Adjusted Index), while employing passive management methods like index sampling to keep costs as low as possible.
This ETF provides broad diversification with just one ticker, at less than half the cost of comparable Vanguard funds that track an index. You could use it to boost stock exposure in your Roth IRA while shifting more bonds towards bonds in your taxable account where interest payments will be taxed – a strategy known as asset location that could lower taxes come retirement time.