Most people understand that Investing with a Roth IRA is important, but a lot of people are unsure of what to invest in with their Roth IRA. Understanding your investing time horizon and the appreciation of asset classes is a great way to start when planning out your investments with a Roth IRA. In this video, I talk about the appreciation of different portfolio models as well as some of my favorite investments for a passive approach to investing with a Roth IRA for the long-term.
2:43 Historical performance of portfolio allocation models
5:17 Back test portfolio asset allocation
10:55 How I invest with my Roth IRA with a 25 year time horizon
My Roth IRA Allocation
Back test portfolio asset allocation
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How to Invest with a Roth IRA for the Long-Term
When it comes to planning for retirement, one of the most popular options is opening an Individual retirement account (IRA). Among the different types of IRAs available, the Roth IRA stands out as an excellent choice for long-term investing. With its tax advantages and flexibility, it is a powerful tool for individuals to build a solid financial future.
Here are some key aspects to consider when investing with a Roth IRA for the long-term:
1. Understanding the Roth IRA: A Roth IRA is an account that allows you to contribute after-tax dollars, meaning you have already paid taxes on the money you contribute. As a result, your contributions grow tax-free, and withdrawals made during retirement are also tax-free. This makes it an attractive option for those who believe their tax rate will be higher in the future.
2. Determine Your Eligibility: Before proceeding, it’s essential to determine if you meet the eligibility requirements for a Roth IRA. In 2021, individuals with a modified adjusted gross income (MAGI) below $140,000 (or $208,000 for married couples filing jointly) can contribute the full amount. There are income limits above which the contribution amount decreases until it is phased out completely.
3. Set Your Investment Goals: Before starting to invest, it’s crucial to define your long-term investment goals. Assess your risk tolerance, time horizon, and financial objectives. Long-term investing allows you to focus on growth-oriented assets that can provide substantial returns over time. Being clear about your goals will guide your investment decisions.
4. Diversify Your Portfolio: Diversification is a fundamental principle of investing. When building your Roth IRA portfolio, it’s important to diversify your investments across various asset classes, such as stocks, bonds, and real estate, to minimize risks. Consider a mix of high-risk, high-reward investments and more conservative options to balance your portfolio.
5. Take Advantage of Tax-Free Growth: One of the most significant advantages of a Roth IRA is the tax-free growth potential. By investing in assets that generate long-term capital gains or regular income, you can maximize the benefits of compounding. The longer your funds grow, the larger your retirement nest egg will become.
6. Regularly Review and Rebalance Your Portfolio: It’s essential to review and rebalance your portfolio periodically. As you near retirement, gradually adjust your asset allocation to reduce exposure to high-risk investments and focus more on capital preservation. Regular reviews will help you stay on track and make any necessary adjustments.
7. Maximize the Contribution Limits: Every year, the IRS sets contribution limits for Roth IRAs. As of 2021, individuals can contribute up to $6,000 (or $7,000 if aged 50 or older) annually. Aim to maximize your contributions each year, taking advantage of the potential tax-free growth and compounding effects over time.
8. Seek Professional Advice if Needed: Investing wisely for the long-term can be a complex task. If you’re uncertain about the investment options or require in-depth advice, it’s recommended to consult with a financial advisor. They can provide personalized guidance based on your specific financial situation and help you navigate the investment landscape.
Investing for the long-term with a Roth IRA is a smart strategy that can provide financial security during retirement. Start early, invest wisely, and utilize the tax benefits to build a substantial nest egg for the future. By following these principles, you can set yourself up for a successful and worry-free retirement.
Learning about portfolio asset allocation on a Sunday… #shamelessnerd
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Jake, what is the reason for Reits in the Roth IRA if your goal is full on long term growth? Is this to stabilize the fund so its not so bumpy or another reason?
What about JEPI in the Roth?
Going with IRA. Congratulations to everyone who is putting forth effort to make a life and accumulate wealth. My wife and I are both 40 and retired. With a combined net worth of nearly $3 million and no debts, we are both retired. We are currently spending our money wisely and sparingly. We were able to start earning through passive income so early because to our lifestyle of saving and investing.
While ago I did 30-40 yr time spans and you just can't get around weighted avg long term -> all stocks for the win; I'd buffer the losses with options and limit orders. The guys that rejuvenated the Dogs of the Dow in the 90's (originally used in the 50's) also wrote a book 'Beating the Dow with Bonds" – entire theory rested on one year's returns; without that one aberration, the theory fell apart.
What would you recommend to get the best growth/return for the time frame in my standpoint I am 53 years old and haven’t invested in anything just opened my Roth IRA account
VGT Apple. Microsoft. Google. Amazon. VTV Jepi. Schd schg VUG . VTI QQQm VIG VYM
Just use jepi instead of bonds. I’m 100% growth stocks since I’ve got 20 years. 50% schd and 50% qqqm
Right now I have my allocations swapped from yours. Pure growth in a taxable and all my dividend stuff in the Roth. After watching this video I'm torn on whether or not I should swap. Lol.
well that's it! it's offical…. I'm a nerd lol
It seems that you'd want those ETFs in an individual account and hold REITs and K-1 stocks in the Roth.
Great video…reconsidering my IRA allocations based on your recommendations.
Do you prefer ETFs vs. index funds for a Roth? What about in an individual account?
Dividends!
As a brazillian I dont really know if I should continue to invest in my brokerage (Avenue) on dividends, I am scared of continuing to deposit hundreds of dollars every month just to be 65 years old and have to pay an isane amount of taxes. can anyone please help me? 🙁
Hi Jake I was rewatching this video cuz, well, I can't decide what to invest in and I was wondering, what are the drawbacks of replacing vti with voo? Is it because its basically the same as vgt? Hope you see this message. I can't make up my mind and it drives me bananas
So, if I'm 21 and just opened a Roth IRA I should choose the most aggressive portfolio for retirement correct? (It is a Robo-Portfolio)
Hi Jake, hope you're enjoying Germany, I watched a video with this combination qqq 33% spy 33% and dia 33%, maybe adding an international position making it even 25% all around.
I don't understand this portfolio visualizer and I was wondering what you thought of this "pie" as a core for my roth. 15 year time horizon, reinvesting dividends. I don't expect you to take the time and research all of this but im taking a shot in the dark. Im overly analytical and my roth is maxed out with 0 investments for over 2 years 🙁 anyway. Thank you
Currently investing in VGT, VOO, AND VNQ.
Yes, but that's because the last eight years have had unpresidented growth in tech stocks and now they are wildly overvalued. They are going to revert back to the mean. If people buy now, they will be buying it all time highs and will likely not see the same returns that came over the last 10 years…
>50% in a single sector is making a large bet. With IT looking frothy, the returns going forward may not be sustainable.
Awesome Video! I’ve been looking for something like this that would help me visualize what a more aggressive portfolio would look like when compared to the S&P
4+ years from retirement and not interested in bonds whatsoever. In a rising interest rate environment I will avoid those until rates have risen and seem to have stabilized somewhat. Mostly in equities (plus pension and social security starting at FRA). Former commercial real estate investor. Did well with bonds when long-term rates were steadily declining over time.