I’m 26, obviously an account that I can only invest $7k a year into, only while I make less than $150k, will not be a large portion of my retirement. Since this account will likely only be a fraction of my total investments when I retire, and it grows tax-free, would it be better to take a shot on something more risky or something more conservative, similar to my other investments, like VT? If I should take the risky route, any suggestions?
I just found out about a Roth IRA, since it is only $7k per year, should I invest it in something conservative like VT, or treat it more like funny money and invest it more risky?
byu/Universal-Magnet ininvesting
Posted by Universal-Magnet
8 Comments
Risky. You don’t pay capital gains so this is where you want to make those moonshots imo.
IMHO:
Taxable: moonshots (in case you’re wrong, tax loss harvesting)
Roth: growth oriented mega caps like google apple (esp when they’re down in April).
Tax deferred: also growth oriented but once bonds are something you’d want in your allocation, this is where you hold them.
You’d be surprised how much $7k/year can turn into over 30+ years.
Personally I invest all my money for retirement (across all accounts) in the same way because retirement is not something I want to play around with.
I keep 5% of my total investments for individual stocks, moonshots, and trading. But I don’t do it in any tax advantaged account – the tax benefits are too good to waste IMO.
I’m not against a little risk, but I wouldn’t treat this as funny money that you can just throw at whatever and not care if you lose. If you max out your Roth every year until retirement (age 67 assumed) and earn 8% returns you’ll have almost 2.5 million dollars in your Roth when you retire.
$7K a year over a long time horizon adds up to real money (and the limits periodically go up). That said, I rotate holdings a lot more in my Roth IRA compared to my taxable account. I don’t use it like funny money and buy crazy things, but since there are no capital gains I manage my Roth more actively. It’s also the place I buy my physical gold and sliver ETFs since they don’t have the benefit of long term capital gains treatment in a taxable account.
It’s silly to think you need a different strategy just because you are “only” contributing 7k. Whether your retirement is in 1 account with a million dollars or 20 accounts with 50k, you should use the same strategy everywhere.
Hopefully your “funny money” operation is a very small peice of you strategy or you are likely to make less than the boring yet excellent VOO
This is a huge debate and there is no perfect answer. Personally I just buy QQQ across all accounts. I do most of my action in taxable accounts so i can utilize margin.