5 Best Investments for Your Roth IRA

Roth IRA is a type of individual account you can use to invest for your future retirement. In this article, we will review the best Roth IRA investments stocks, explain what makes them so, and provide a detailed comparison with the key factors to consider.

Standard and Poor’s 500 Index Funds

When looking for an investment opportunity, we recommend paying attention to funds based on the S&P 500 Index (Standard and Poor’s 500 Index). It includes hundreds of the USA's leading companies, like Amazon and Microsoft. Naturally, investing in these companies carries a lower degree of risk compared to more volatile stocks, which is crucial for retirement plans.

The average annual return of an S&P 500-based fund is approximately 10%, but the exact figure may vary depending on which fund you choose. The expense ratio is also relatively low, meaning you won’t have to spend a large portion of your earnings on fund managers. For instance, Fidelity Zero offers a 5-year annual return of 16.2% with a 0.0% expense rate.

Dividend Stock Funds

Dividend stock funds focus on companies from mature industries that also have substantial cash returns. Reliable funds of this category not only pay dividends but also increase annual payouts over time, transforming your initial investments into a solid source of income.

Dividend stock funds are a popular choice for retirement accounts, as their reliance on industry stability makes them safer in the long term. For another strong advantage, dividends are not taxable. For example, the Vanguard Dividend Appreciation ETF (VIG), one of the best dividend stocks for a Roth IRA, offers 13.63% for 5-year annual returns with a 0.05% expense ratio.

Value Stock Funds

Value stock funds focus on undervalued stocks in hopes of earning dividends once the market corrects their price. This focus on long-term growth naturally places these stocks among the best Roth IRA investments for young adults.

Value stocks also tend to have lower volatility, making them even more suited to long-term investments. As a bonus, value stock funds pay dividends, ensuring investors get good returns as well as cash payouts.

As an example of a value stock fund, Vanguard Small-Cap Value ETF offers 5-year annual returns of 15.01% and a 0.07% expense ratio.

Target-Date Funds

This option is best suited for investors who don’t want to actively manage their portfolio. An investor simply needs to choose the year when they expect to receive their money, and the fund system will automatically reallocate their finances from risky, high-return assets to more reliable and low-return bonds. Under this model, all the investor has to do is deposit money, while the fund company will handle the rest.

However, target-date funds have a major disadvantage: they often cost more than other funds, although their expense ratio is quite reasonable. Also, account management will cost you extra. If you want to get higher-growth assets in your portfolio, we recommend picking up a target date 5–10 years after the start of your retirement. For context, the expense ratio for Vanguard Target Retirement, one of the best Roth IRA investments, is only 0.08%.

Real Estate Investment Trust (REIT) Funds

REITs are tax-advantaged companies that operate real estate-related assets. These funds’ payouts are paid as dividends to keep them tax-free at the corporate level.

REIT funds are considered good Roth IRA investments, as they offer high dividends as well as a reliable track record of returns. Not having to pay any taxes on your earnings is another strong reason to choose this option. 5-year annual returns for the Real Estate Select Sector SPDR Fund are 6.3%, while their expense ratio is 0.08%.

Comparison of the best Roth IRA Accounts

Now, let’s compare the recommended Roth IRA accounts and review their minimum investment requirements. Here’s what the most promising companies with stable financial market performance can offer you.

Key Considerations for Roth IRA Investments

So, what are the best Roth IRA investments? There’s no single answer, and every investor should evaluate their opportunities and decide what form of investment will work best for them. For instance, what investments are you ready to put into your retirement accounts? What kind of asset will be the most suitable for you?

Based on our experience, low-cost core index funds are quite useful. A single inexpensive bond index fund and a single stock index fund can give enough space to increase returns and reduce the risk. For a good start, think about a broad-based stock or bond index fund.

You can also expand your choices by adding a global stock index fund to the mix.

Also, keep in mind that Roth IRA investments shouldn’t go beyond the one-account limit. However, if the family has two accounts, they can double their annual savings.

Final Thoughts

Investing in any of the best Roth accounts will make you more financially prepared for the future and ensure you will have a stable outcome. With a bit of financial planning and a strong portfolio, you’ll know what to expect and will be able to find more investment options if the need arises. Choosing a recommended company increases the chances of finding a safe and promising investment opportunity.