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Best Roth IRA Investments (3 STRATEGIES THAT WORK) - YouTube
Channel: It's Your Girl Rose
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a Roth IRA is completely useless if you
don't invest the money in your Roth IRA
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what it's up everyone I'm rose and
welcome back to my channel the number
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one place for financial education
empowerment and inspiration in this
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video I'm gonna go over three of the
best Roth IRA investments any one of
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these investments can and will make you
a tax-free millionaire I'm also gonna
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make a recommendation on how to decide
which of these three strategies is best
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for you as with so many things in life
there's never one right answer because
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the best investment for you may not be
the best investment for me so I want you
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to be as educated as possible so that
you can be in full control of what
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happens to your money if all this sounds
good to you give this video a like and
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with that we're gonna jump right in
since with the Roth IRA you'll never
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have to pay taxes on your investment
gains it makes sense to use your Roth
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IRA for high growth investments because
typically more profits equals more taxes
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but not if those investments are inside
your Roth IRA not only this but the Roth
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IRA is a long-term vehicle so it also
doesn't make sense to invest for passive
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income in your Roth IRA you can't access
or pull out the money anyway until you
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turn 59 and a half so instead of
focusing on passive income in your Roth
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IRA why not focus on growth so this
rules out a lot of investments for
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example bonds or money market
investments like CDs and short term
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Treasuries and certainly not cash
because you don't want to waste the tax
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shield of the Roth IRA on investments
that return only one or two percent or
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nothing so assuming you're not about to
retire like next year you want growth
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focused investments for your Roth IRA in
other words you want to invest in stocks
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so let's talk about the three ways to
invest in stocks for your Roth IRA I'll
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first list what they are and then I'll
explain how each one works in order of
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easiest to most advanced the first way
to invest in your Roth IRA is to buy
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target-date funds the second way is to
buy index funds and the third way is to
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buy individual
stocks so let's go into each of these
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one by one by far the easiest investment
for your Roth IRA is buying target date
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funds target date fund is a mutual fund
that contains three to four different
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index funds inside it essentially it's a
fund of funds here's a typical target
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date fund and you'll usually see a
domestic stock fund a International
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stock fund a bond fund and usually a
small amount in a money market or cash
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fund so that's what a fund of funds
looks like a 2055 fund is going to be
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more heavily weighted towards stocks
then say a 2025 fund that's because if
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you're planning to retire really soon
you don't have the luxury of waiting for
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a recovery in the event of a stock
market downturn so you're gonna have
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more bonds which gives you more
stability and less in stocks target-date
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funds automatically pick a blend of
investments for you based on your
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approximate age and then it readjusts
that blend of investments as you
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approach retirement age if more
Americans owned target-date funds during
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the last recession they really would
have been much better off I know it's a
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sensitive topic but when you hear about
people who lost half of their retirement
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in the 2008 stock market crash many of
them had too much of their portfolio in
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stocks given their age and or they
either sold everything and then totally
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missed out on the recovery since it's
all age specific the name of a target
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date fund is always gonna have a year
attached to it for example the fidelity
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Freedom Index 2055 funds this is the
appropriate target date fund for a 30
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year old who would retire sometime
around the year 2050 5 every target date
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fund has a target retirement year as
part of the name so finding the right
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one for you is really easy just figure
out in what years someone your age would
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approximately retire and then just look
for a target date fund with that year
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ramita 80 personal finance guru and
best-selling author of I will teach you
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to be rich recommends target date funds
for the vast majority of
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people he talks about how target-date
funds are the ultimate set it and forget
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it investment and they cost a lot less
than using a robo-advisor
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yes you can achieve higher returns with
other strategies like the ones I'm gonna
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tell you about a little later in this
video but these other strategies all
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require more work and more effort you
don't get higher returns putting in less
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effort it's like more work equals more
returns that's generally how it works
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that's why target-date funds are the
logical choice for most people most
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people are busy professionals they have
families and all kinds of other things
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in their life going on and they don't
really want to manage their investments
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so in that sense target-date funds are a
no-brainer investment option for your
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Roth IRA these seconds of Roth IRA
investments I want to talk about is
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index funds this strategy is really
similar to target date funds except it's
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much more DIY the target date fund gives
you a complete optimally allocated
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portfolio in one nice package but with
index funds you basically would build
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that yourself so you have to decide on
an asset allocation that's right for you
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and for your age and then you need to
find index funds to build that asset
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allocation you would also need to
rebalance your portfolio once the market
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moves in order to maintain those
percentage asset allocations as well as
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keep your retirement date or your goal
date in mind and readjust your portfolio
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towards a more conservative allocation
over time so it is a little bit more
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work than a target date fund because
you're essentially gonna do yourself
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what the target date fund would do for
you but this option is good for you if
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you want a little more control over your
investments then a target date fund so
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for all you type-a nerds and control
freaks out there and I'm one of them
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you'll probably want to do it this way I
personally do index funds in one of my
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accounts and I don't do target date
funds because I personally want to
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follow an asset allocation that isn't
offered by any target date funds the
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asset allocation model that I follow is
one recommended by David Swensen he's
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the legendary portfolio manager of
Yale's
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thirty billion dollar endowment fund I
talk about him a lot in my videos and he
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recommends allocating
percent in domestic stocks 15% in
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international stocks 10% in emerging
markets 15% in US Treasuries 15% in US
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inflation-protected Treasuries and 15%
in wreaths or real estate investment
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trusts so this is a portfolio made of
six different index funds but if you
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want to keep it simple you can also just
copy the allocation of a target date
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fund for example if you look at the
fidelity 2055 fund that we talked about
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earlier you see that they have 60% in
domestic stocks they have 30 about 30
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percent in an International stock fund
and the rest of it in bond and money
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market funds so you could just copy that
asset allocation and find index funds to
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create that and just do it on your own
there's actually hundreds of different
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asset allocations you could choose from
there is no one right answer but you
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just want to understand the pros and
cons of each and then decide on
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something I picked David Swanson's asset
allocation because I like that it
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doesn't have too many eggs in one basket
in other words there's no single asset
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class that dominates the portfolio
there's like at most 30 percent in the
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domestic stocks but then everything else
is 15 percent in real estate and 15
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percent in bonds and 15 percent in
emerging markets this means that
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throughout any economic cycle or season
periods of low growth high growth low
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inflation low and high inflation my
portfolio is positioned to benefit and
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yet it's still very growth focused
because most of it it's is in stocks so
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it's really just a fancier version of
the typical asset allocation of most
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target-date funds for a more in-depth
explanation on how to invest in index
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funds for your Roth IRA make sure to
download my Roth IRA investing starter
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kit the link is below
it's full of step-by-step instructions
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on different asset allocations to choose
from the pros and cons of each
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allocation which index funds to buy and
how much of each index fund to buy it's
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very specific in depth and it's an epic
resource that I've created just for you
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and I know you're gonna love it
so click the link in the description box
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below to download it once you decide on
an asset allocation then
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step is to find low-cost index funds
that fit those allocations the key is to
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make sure that the expense ratio of the
index fund is under 0.2% and you can
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even find a lot of index funds that are
much lower than that if you're thinking
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of doing index funds for your Roth IRA
then definitely download my Roth IRA
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investing starter kit and also check out
this other video right here it's another
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very popular video that I did
specifically on fidelity index funds the
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third and most advanced way to invest
your Roth IRA is by buying individual
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stocks at the heart of it the whole idea
when buying individual stocks is that
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you're trying to buy good companies at a
good price you don't want to buy bad
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companies at a good price you don't want
to buy good companies at a bad price you
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want to buy good companies at a good
price
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obviously that's easier said than done
but essentially that's the heart of it
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and investing in individual stocks is
the fastest way to build wealth however
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it's also the most labor-intensive way
to invest your Roth IRA there's a bit of
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a learning curve and it requires you to
kind of learn how to read financial
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statements and do research on individual
companies when you're looking at
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individual stocks to buy for your Roth
IRA you would want to ask yourself the
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following questions do I understand this
company and the industry it's in like do
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I understand how this company makes
money and and do I even know what this
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company's business model is and what it
takes for it to be successful another
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question you want to ask yourself is do
you want do you trust the CEO and the
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management team to do the right thing
you also want to ask yourself does this
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company have good cash flow now and in
the future so that does involve reading
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the financial statements and detecting
trends and patterns and thinking about
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where the industry's headed in the
future you also want to ask yourself
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does this company have too much debt
which is really something that would
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compromise its ability to survive any
sort of economic downturns and a quick
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way to tell whether a company has too
much debt or not is to look at a ratio
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called the debt to asset ratio this
tells you how much a company owes
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relative to how much
Oh's in general you want to invest in
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companies that own twice as much as it
is the more it owns relative to what it
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owes the better this is just one of the
metrics you could look at to see if a
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company has too much debt and I talk
more about debt metrics in my Roth IRA
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investing starter kit so definitely grab
it below if you haven't already another
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question you want to ask yourself is can
I buy this stock at a reasonable price
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and what's reasonable is completely
relative right it's all relative to how
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profitable the company is the more
profitable a company is the more I'm
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willing to pay to own that stock and on
the flip side the less profitable that
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company is the less I'm willing to pay
to own that stock so one quick way to
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tell if the stock is trading on a
reasonable price is to look at what's
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called the p/e ratio or the price to
earnings ratio the price to earnings
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ratio is a metric that compares the
price of the stock divided by its
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earnings per share and the lower the p/e
ratio the cheaper the price is relative
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to the earnings and the higher the p/e
ratio the higher or more expensive the
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stock price is relative to its earnings
in other words a low p/e ratio means
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more bang for the buck or you're getting
more earnings for every dollar that you
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pay for that stock again my Roth IRA
investing starter kit provides detailed
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instructions on how to find a stock's
p/e ratio as well as how to use it to
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make good investing decisions make sure
to download it and now for some
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recommendations on how to go about
choosing which of these three Roth IRA
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investing strategies would be best for
you first and foremost you want to be
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realistic about what you're actually
going to do there is nothing more
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useless than an amazing investing
strategy that you're not gonna follow
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through with so the third option of
picking individual stocks obviously it
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sounds fun and it can be really
lucrative but 99% of people just real
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talk here don't have the time or the
willingness to put in that kind of work
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it's kind of like if you're trying to
lose weight and you need to choose a
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diet plan then you've probably heard
about the keto diet the keto diet where
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you like don't eat any
herbs and just eat a ton of fat it
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sounds great but like most people aren't
able to really cut out carbs completely
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because carbs are delicious it's not
realistic for a lot of people so you're
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better off choosing or I would be better
off choosing an easier diet plan that I
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would actually be able to do and the
results might not be as sexy or fast but
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at least it'll work because I'm actually
gonna do it so going back to investing
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you want to pick the strategy that
you're actually going to do and in most
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cases just investing in target-date
funds you're gonna end up really really
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wealthy if you just do that consistently
if you're a lazy investor and you want
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to invest the money in your Roth IRA
with as little effort as possible go
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with target-date funds if your eyes just
glaze over at the thought of managing
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your own own investments and looking for
index funds and rebalancing your
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portfolio then don't force yourself to
do something that you don't want to do
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life is too short for that so lots of
people retire millionaire is just doing
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target-date funds so I really recommend
target-date funds for the very kind of
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lazy hands-off investor for the slightly
more DIY investor I recommend index
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funds it can be really rewarding to
learn about different asset allocations
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and to kind of study the pros and cons
of each and then to decide for yourself
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what you want to do and which asset
allocation aligns the most with your
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beliefs and priorities so I think it
really gives you a sense of empowerment
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and control over your finances so I like
index funds as well and for the very DIY
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investor I suggest learning how to
invest in individual stocks all of you
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type-a nerds out there I see you just be
prepared to roll up your sleeves learn
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some accounting terminology and do a bit
of research and number crunching but for
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anyone who takes the time to learn how
to assess individual stocks it can be
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really rewarding so that pretty much
sums up three really awesome ways to
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invest your Roth IRA if you have any
questions feel free to ask me in the
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comments or DM me on instagram @
investing with rose and if you think
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this video was helpful please give it a
thumbs up and subscribe subscribe
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subscribe it really helps out the
channel and more importantly it helps
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get this life
changing financial information in front
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of more people I post new videos every
Wednesday so I'll see you next week same
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time same place
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