Best Roth IRA Investments (3 STRATEGIES THAT WORK)

a Roth IRA is completely useless if you
don’t invest the money in your Roth IRA what it’s up everyone I’m rose and
welcome back to my channel the number one place for financial education
empowerment and inspiration in this video I’m gonna go over three of the
best Roth IRA investments any one of these investments can and will make you
a tax-free millionaire I’m also gonna make a recommendation on how to decide
which of these three strategies is best for you as with so many things in life
there’s never one right answer because the best investment for you may not be
the best investment for me so I want you to be as educated as possible so that
you can be in full control of what happens to your money if all this sounds
good to you give this video a like and with that we’re gonna jump right in
since with the Roth IRA you’ll never have to pay taxes on your investment
gains it makes sense to use your Roth IRA for high growth investments because
typically more profits equals more taxes but not if those investments are inside
your Roth IRA not only this but the Roth IRA is a long-term vehicle so it also
doesn’t make sense to invest for passive income in your Roth IRA you can’t access
or pull out the money anyway until you turn 59 and a half so instead of
focusing on passive income in your Roth IRA why not focus on growth so this
rules out a lot of investments for example bonds or money market
investments like CDs and short term Treasuries and certainly not cash
because you don’t want to waste the tax shield of the Roth IRA on investments
that return only one or two percent or nothing so assuming you’re not about to
retire like next year you want growth focused investments for your Roth IRA in
other words you want to invest in stocks so let’s talk about the three ways to
invest in stocks for your Roth IRA I’ll first list what they are and then I’ll
explain how each one works in order of easiest to most advanced the first way
to invest in your Roth IRA is to buy target-date funds the second way is to
buy index funds and the third way is to buy individual
stocks so let’s go into each of these one by one by far the easiest investment
for your Roth IRA is buying target date funds target date fund is a mutual fund
that contains three to four different index funds inside it essentially it’s a
fund of funds here’s a typical target date fund and you’ll usually see a
domestic stock fund a International stock fund a bond fund and usually a
small amount in a money market or cash fund so that’s what a fund of funds
looks like a 2055 fund is going to be more heavily weighted towards stocks
then say a 2025 fund that’s because if you’re planning to retire really soon
you don’t have the luxury of waiting for a recovery in the event of a stock
market downturn so you’re gonna have more bonds which gives you more
stability and less in stocks target-date funds automatically pick a blend of
investments for you based on your approximate age and then it readjusts
that blend of investments as you approach retirement age if more
Americans owned target-date funds during the last recession they really would
have been much better off I know it’s a sensitive topic but when you hear about
people who lost half of their retirement in the 2008 stock market crash many of
them had too much of their portfolio in stocks given their age and or they
either sold everything and then totally missed out on the recovery since it’s
all age specific the name of a target date fund is always gonna have a year
attached to it for example the fidelity Freedom Index 2055 funds this is the
appropriate target date fund for a 30 year old who would retire sometime
around the year 2050 5 every target date fund has a target retirement year as
part of the name so finding the right one for you is really easy just figure
out in what years someone your age would approximately retire and then just look
for a target date fund with that year ramita 80 personal finance guru and
best-selling author of I will teach you to be rich recommends target date funds
for the vast majority of people he talks about how target-date
funds are the ultimate set it and forget it investment and they cost a lot less
than using a robo-advisor yes you can achieve higher returns with
other strategies like the ones I’m gonna tell you about a little later in this
video but these other strategies all require more work and more effort you
don’t get higher returns putting in less effort it’s like more work equals more
returns that’s generally how it works that’s why target-date funds are the
logical choice for most people most people are busy professionals they have
families and all kinds of other things in their life going on and they don’t
really want to manage their investments so in that sense target-date funds are a
no-brainer investment option for your Roth IRA these seconds of Roth IRA
investments I want to talk about is index funds this strategy is really
similar to target date funds except it’s much more DIY the target date fund gives
you a complete optimally allocated portfolio in one nice package but with
index funds you basically would build that yourself so you have to decide on
an asset allocation that’s right for you and for your age and then you need to
find index funds to build that asset allocation you would also need to
rebalance your portfolio once the market moves in order to maintain those
percentage asset allocations as well as keep your retirement date or your goal
date in mind and readjust your portfolio towards a more conservative allocation
over time so it is a little bit more work than a target date fund because
you’re essentially gonna do yourself what the target date fund would do for
you but this option is good for you if you want a little more control over your
investments then a target date fund so for all you type-a nerds and control
freaks out there and I’m one of them you’ll probably want to do it this way I
personally do index funds in one of my accounts and I don’t do target date
funds because I personally want to follow an asset allocation that isn’t
offered by any target date funds the asset allocation model that I follow is
one recommended by David Swensen he’s the legendary portfolio manager of
Yale’s thirty billion dollar endowment fund I
talk about him a lot in my videos and he recommends allocating
percent in domestic stocks 15% in international stocks 10% in emerging
markets 15% in US Treasuries 15% in US inflation-protected Treasuries and 15%
in wreaths or real estate investment trusts so this is a portfolio made of
six different index funds but if you want to keep it simple you can also just
copy the allocation of a target date fund for example if you look at the
fidelity 2055 fund that we talked about earlier you see that they have 60% in
domestic stocks they have 30 about 30 percent in an International stock fund
and the rest of it in bond and money market funds so you could just copy that
asset allocation and find index funds to create that and just do it on your own
there’s actually hundreds of different asset allocations you could choose from
there is no one right answer but you just want to understand the pros and
cons of each and then decide on something I picked David Swanson’s asset
allocation because I like that it doesn’t have too many eggs in one basket
in other words there’s no single asset class that dominates the portfolio
there’s like at most 30 percent in the domestic stocks but then everything else
is 15 percent in real estate and 15 percent in bonds and 15 percent in
emerging markets this means that throughout any economic cycle or season
periods of low growth high growth low inflation low and high inflation my
portfolio is positioned to benefit and yet it’s still very growth focused
because most of it it’s is in stocks so it’s really just a fancier version of
the typical asset allocation of most target-date funds for a more in-depth
explanation on how to invest in index funds for your Roth IRA make sure to
download my Roth IRA investing starter kit the link is below
it’s full of step-by-step instructions on different asset allocations to choose
from the pros and cons of each allocation which index funds to buy and
how much of each index fund to buy it’s very specific in depth and it’s an epic
resource that I’ve created just for you and I know you’re gonna love it
so click the link in the description box below to download it once you decide on
an asset allocation then step is to find low-cost index funds
that fit those allocations the key is to make sure that the expense ratio of the
index fund is under 0.2% and you can even find a lot of index funds that are
much lower than that if you’re thinking of doing index funds for your Roth IRA
then definitely download my Roth IRA investing starter kit and also check out
this other video right here it’s another very popular video that I did
specifically on fidelity index funds the third and most advanced way to invest
your Roth IRA is by buying individual stocks at the heart of it the whole idea
when buying individual stocks is that you’re trying to buy good companies at a
good price you don’t want to buy bad companies at a good price you don’t want
to buy good companies at a bad price you want to buy good companies at a good
price obviously that’s easier said than done
but essentially that’s the heart of it and investing in individual stocks is
the fastest way to build wealth however it’s also the most labor-intensive way
to invest your Roth IRA there’s a bit of a learning curve and it requires you to
kind of learn how to read financial statements and do research on individual
companies when you’re looking at individual stocks to buy for your Roth
IRA you would want to ask yourself the following questions do I understand this
company and the industry it’s in like do I understand how this company makes
money and and do I even know what this company’s business model is and what it
takes for it to be successful another question you want to ask yourself is do
you want do you trust the CEO and the management team to do the right thing
you also want to ask yourself does this company have good cash flow now and in
the future so that does involve reading the financial statements and detecting
trends and patterns and thinking about where the industry’s headed in the
future you also want to ask yourself does this company have too much debt
which is really something that would compromise its ability to survive any
sort of economic downturns and a quick way to tell whether a company has too
much debt or not is to look at a ratio called the debt to asset ratio this
tells you how much a company owes relative to how much
Oh’s in general you want to invest in companies that own twice as much as it
is the more it owns relative to what it owes the better this is just one of the
metrics you could look at to see if a company has too much debt and I talk
more about debt metrics in my Roth IRA investing starter kit so definitely grab
it below if you haven’t already another question you want to ask yourself is can
I buy this stock at a reasonable price and what’s reasonable is completely
relative right it’s all relative to how profitable the company is the more
profitable a company is the more I’m willing to pay to own that stock and on
the flip side the less profitable that company is the less I’m willing to pay
to own that stock so one quick way to tell if the stock is trading on a
reasonable price is to look at what’s called the p/e ratio or the price to
earnings ratio the price to earnings ratio is a metric that compares the
price of the stock divided by its earnings per share and the lower the p/e
ratio the cheaper the price is relative to the earnings and the higher the p/e
ratio the higher or more expensive the stock price is relative to its earnings
in other words a low p/e ratio means more bang for the buck or you’re getting
more earnings for every dollar that you pay for that stock again my Roth IRA
investing starter kit provides detailed instructions on how to find a stock’s
p/e ratio as well as how to use it to make good investing decisions make sure
to download it and now for some recommendations on how to go about
choosing which of these three Roth IRA investing strategies would be best for
you first and foremost you want to be realistic about what you’re actually
going to do there is nothing more useless than an amazing investing
strategy that you’re not gonna follow through with so the third option of
picking individual stocks obviously it sounds fun and it can be really
lucrative but 99% of people just real talk here don’t have the time or the
willingness to put in that kind of work it’s kind of like if you’re trying to
lose weight and you need to choose a diet plan then you’ve probably heard
about the keto diet the keto diet where you like don’t eat any
herbs and just eat a ton of fat it sounds great but like most people aren’t
able to really cut out carbs completely because carbs are delicious it’s not
realistic for a lot of people so you’re better off choosing or I would be better
off choosing an easier diet plan that I would actually be able to do and the
results might not be as sexy or fast but at least it’ll work because I’m actually
gonna do it so going back to investing you want to pick the strategy that
you’re actually going to do and in most cases just investing in target-date
funds you’re gonna end up really really wealthy if you just do that consistently
if you’re a lazy investor and you want to invest the money in your Roth IRA
with as little effort as possible go with target-date funds if your eyes just
glaze over at the thought of managing your own own investments and looking for
index funds and rebalancing your portfolio then don’t force yourself to
do something that you don’t want to do life is too short for that so lots of
people retire millionaire is just doing target-date funds so I really recommend
target-date funds for the very kind of lazy hands-off investor for the slightly
more DIY investor I recommend index funds it can be really rewarding to
learn about different asset allocations and to kind of study the pros and cons
of each and then to decide for yourself what you want to do and which asset
allocation aligns the most with your beliefs and priorities so I think it
really gives you a sense of empowerment and control over your finances so I like
index funds as well and for the very DIY investor I suggest learning how to
invest in individual stocks all of you type-a nerds out there I see you just be
prepared to roll up your sleeves learn some accounting terminology and do a bit
of research and number crunching but for anyone who takes the time to learn how
to assess individual stocks it can be really rewarding so that pretty much
sums up three really awesome ways to invest your Roth IRA if you have any
questions feel free to ask me in the comments or DM me on instagram @
investing with rose and if you think this video was helpful please give it a
thumbs up and subscribe subscribe subscribe it really helps out the
channel and more importantly it helps get this life
changing financial information in front of more people I post new videos every
Wednesday so I’ll see you next week same time same place

100 Replies to “Best Roth IRA Investments (3 STRATEGIES THAT WORK)

    (The Ultimate Guide to Becoming a Tax-Free Millionaire)

  2. Should I open a Roth IRA if within the next 5-10 years I will probably reach the income limit? Is it worth it if I am not able to contribute for the next 40 years (I'm in my early 20s)? If I shouldn't what are my other options, as I already contribute to my 401k. How am I supposed to predict 1 – 1 1/2 years in advance whether I will meet the income limit to determine if I can contribute? I don't know whether I will get promoted, get married, how my other investments will do, etc.

  3. Can we invest together on a date with me for a long term growth! You are beautiful btw😘 thanks for the info on Roth IRA.

  4. Your vid was recommended in my feed and let's say you have a new subbie! What are you thoughts about starting investing given the current geo-political circumstances in the middle east or does this have any effect on investments at all? Thanks for any feedback

  5. just discovered your channel! i watched one video & subscribed ~ you do a great job of explaining information that can be a bit intimidating. i’ve now watched a few more videos & just wanted to thank you for sharing your knowledge! 😊

  6. Being a tax-free millionaire is a bit overrated. If you're paying no taxes in retirement but you paid taxes now at your highest marginal bracket (instead of deferring them with a traditional pre-tax account), you're losing, and BIGLY. Be careful overvaluing Roth compared with traditional, it's sort of a trap.

  7. Too much international allocation is anything over 10% in my biased opinion. Perhaps a total international market index(minus us and canada) with 80-20 split is what would be a good starting point. FTEC technology sector ETF is doing pretty amazing. Investing in individual stocks is a crap shoot and I would not invest more than 5% into them, thats my play money.

  8. Carbs are delicious! And I cannot loose weight eating them. I do not like life cycle funds. Watch their expense fees if you use them. Individual stocks is way too much work for me. I hate reading annual reports and financial statements. I read about 10 financial statements and fell asleep every time. Back to loosing weight. You can't exercise enough to compensate for over-eating. It just don't work well maybe short term. If your retirement date is like 25 years from now, why would you be investing in a bond fund or a CD? Those things are what you pick up about 5-10 years from retirement yet a life cycle fund will have about 5 to 10% even with 40 years to go.

  9. This video was a gold mine of information. The way you broke things down made it much easier for entry level investors to understand. Thanks for the IQ boost! 👍

  10. This channel is going to get so many subscribers. I hope the great, genuine content you create doesn’t change when you’re a YouTube star!

  11. Why would I choose a Roth over a traditional IRA? Once I retire and have limited income I won’t pay much tax, whereas now with high income I need the deduction I get from the traditional Ira, no?

  12. EXCELLENT video! As a GenX DIY investor I can attest to everything you've said, although with the caveat that perhaps it should be tax free multi-millionaire 😉 Hopefully everyone watching will follow your advice and enjoy a lifetime of financial security. Remember, kids…the earlier you start the easier it is and the less money you need to put in thanks to compounding returns and a long time horizon.

  13. Whenever you give investment advice you need to talk about risk… Risk isn't a sad story, it's real… This is not easy… So many people don't understand the risk… Higher returns are not ever guaranteed… Effort has little to do with returns… You're a crackpot… Let's get rich rich rich… The best way to make money is to work hard and save… Once the market moves? Really? Know your audience… Good for you… You are not doing anybody any good here… Are you a licensed investment advisor?

  14. I've watched a lot of videos about Roth IRA's, and none of them are as informative as you are. Thank you for being awesome!

  15. Would an ETF be worth considering if on average it yields 2-3% more than index funds despite a higher expense ratio – let's say 0.7%

  16. You are right… Bonds, CDs, Treasury, etc have no place in Roth. Therefore, target retirement funds should also not be in a Roth.
    Very high dividends, especially REITs, and high growth. Though high growth could be better served in a standard investment account if tax rules stay the same.

  17. Why did you say you can't withdraw the money until 59 1/2? Roth IRA growth can be withdrawn after 5 years tax free. The minute you or money in you can remove the principal without any tax penalty. After 5 years though you can withdraw the growth tax free.

  18. Wow this is the third video of yours that I have watched now. I'm impressed at how you break things down. I'll put another like in for you. 🙂

  19. Great break down and explanations. Better than other channels are are like, "do the three stock portfolio because…just because I said so!"

  20. If by passive you mean dividends, I could argue a Roth IRA is a great place to hold them. Take REITs that can have complicated taxation – it removes the nonqualified dividend component. Returns should be irrelevant where they come from measuring total return in a tax advantaged account.

  21. Excellent! Are these funds such as Fidelity's index PUBLICLY traded so that I can purchase them from other brokerage or do I have to open an account with Fidelity? Thanks.

  22. Fails to address using a Roth IRA as a emergency fund. Very important to add that you can always take your cost basis out penalty-free.

  23. Heyy is there a video with a full detailed step y step view of using fidelity staight from opening n account to starting a trade ?

  24. I just stumbled across your channel. You explain things very well. Your presentation is logically laid out and easy to follow.

  25. I have a Vanguard account and see that I can buy these David Swensen recommended Fidelity funds through Vanguard. Is this a good idea, or is it frowned upon to buy from a different brokerage?

  26. I've watched lots of investment videos for beginners on youtube and by far your channel is one of the best. Thanks for making these videos! Yours is my first subscribed channel:)

  27. Thanks for the different approaches for Roth IRA. So I have had a Roth for about 1year and 3 months that consists of about 38 selected stocks that are growth and growth dividend. Based on this video I decided to create a new Roth this year and follow the David Swensen approach and compare them in another 1 year and 3 months and see which is doing better. Since I created it in M1 Finance I choose as follows: VTI 30%, VTIP 15%, VWO 10%, VXUS 10%, VNQI 5%, SPTI 15%, and PSR 15%. So my stock based Roth I will not contribute to just let it Drip and actively contribute to the new one maxing it out. Fun times😀

  28. For roth IRA I will not recommend US treasury and TIPS because of tax. David Swensen model is great but I will get more knowledge on tax before adding any Treasuries and TIPS. I go more aggressive on roth because I know I don't pay any Taxes and the Market is on a new high every 8 to 10 years, but very good advice

  29. I'm glad I found your channel. Thank you for sharing this type of information. As a young professional who recently started there full-time position, it was overwhelming setting up my retirement plan. However, after watching multiple videos you published, I now have a strategy towards my retirement plan.

  30. All you need is "One" Target Date Index Fund. Investing should seem relatively boring if your doing it right its almost like watching paint dry.

  31. Failed to mention that you can take out your contributions (not gains) at any point in time before you are 59.5. For example, retire at 55 and pull out some contributions monthly (auto-schedule). This is one way to avoid tax penalties (72t/SEPP for Trad IRAs is another). The other major benefit is that the ROTH money does not count toward your taxes AGI so you can, for example, get ACA subsidies to help pay for healthcare before 59.5 (after which you can take money from any Trad/ROTH IRA).

  32. So if I start an index fund I won’t be able to withdraw my money until I’m 59? Can I just invest for 5-10 years if I wanted too?

  33. I'm wanting to start my roth ira, however i want to do index funds since i have my 401k invested in a target date fund already. Can you change your investments without any issues in Vanguard? If so i may start with a target then change it up once i get more knowledge. Or i may just do a simple s and p 500 with some bond allocation.

  34. Thanks for the advice. You're a inspiring person. I want to get financially secured and do something similar. Financial literacy is a major factor in most underachieving people out there.

  35. Be wary of Roth ira. Gov't policy can change and in my opinion probably will. President Obama wanted to start taxing Roth iras. At that point I stopped investing in my roth. When you invest in any of these investment vehicles remember the gov't can change the rules at any time. Do you really think the gov't will keep their greedy hands away from your money? When your money is in a Roth or a annuity (pure garbage) that's it. You can't move it out. It's stuck there unless you can stomach the penalties for early withdrawal. Learn from my mistakes. Stick to low cost index funds and individual stock. You don't need anything fancy. This strategy has gotten me to 2 million.

  36. Hi Rose, new to your channel but have already subscribed. Your context is sooooo helpful with me wanting to learn about investing in a Roth. Your chest sheet is a life saver. Is it stupid to invest in both a target date AND the Swenson method? I’m a beginner and the idea of putting all my eggs in one basket scares me.

  37. Stocks are unreliable. same goes for mutual funds, etf's and etc. Real estate is the way to go. CASHFLOW IS KING.

  38. How do you get to be a tax-free millionaire within your Roth IRA? With a contribution limit of $6,000/year this seems very unlikely.

  39. That is exactly what I am doing: growth ETFs in a Roth IRA. My intention is to let them grow big enough to make income funds and/or value ETFs worthwhile years later.

  40. When the housing market went into freefall in 2008-2008, I remember stories of shady lenders who were approving home loans to "anyone with a pulse.". One tactic they used was to bury/hide the toxic loans in bundles before passing them on to another financial institution. That was not sustainable, obviously, because there comes a point in that pattern when the reverse begins to happen: the quality loans getting buried in the toxic loans. This kept haunting me as I have been simply investing in ETFs. I appreciate very much this video (and a recent one by Joe Carleson) explaining how to read the company reports. Now I can try to see if bad companies are getting hidden with good ones. It is a silly endeavor since the computers are doing it, not shady brokers, but once traumatized by stuff like that back then, this kind of over cautious behavior can be expected.

  41. Great video, Rose! Love you video, you always give me a very clear of view in investment. ❤️ I also wonder if this Idea can fit regular 401K ?

  42. Hi Rose, Do I need to invest all my
    $6000 in one investment, can I invest in different investments "Target-date funds, Asset allocation model and Stocks " every year?

  43. Got a question. Should I invest a lump sum of $6k into my Roth ira or invest it monthly? Just want to invest in index fund. Like every year just throw $6k in the beginning into Roth.

  44. You should have way more likes. Sad how videos about people do iij ng dumb stuff has a billion views but not money smart bideos.

  45. I like your example of why the Keto diet does not work – because carbs are delicious. I literally laughed out loud! Thank you for the video. I appreciate the content.

  46. Thanks Rose, your videos and take aways on books has helped me understand what I'm looking at in the financials of a company much better. After a few of your videos I have revisited my whole portfolio looking at ROIC, ROA, D/E, D/A, P/E, & Profit margins. I only found two stocks I own that I would buy knowing what I know now. Unfortunately the market tanked the very next morning, riding it out now. But I know what to look for now and my entry point will be decided by reading the financials and not a blind dart toss and hope. Great substance and quality in the information you provide. looking forward to the bargains ahead.

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