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
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time same place