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 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