Favorite Investments for an IRA
Morningstar.com readers share what they own in their IRAs and why.
March is upon us. It's the time of year when thoughts turn to college basketball, spring break--and funding IRAs. Specifically, investors have until April 18 this year to fund an IRA for tax-year 2015. And although investors can contribute to an IRA any time of year, many wait until March or April to contribute.
In an effort to provide last-minute IRA contributors with some ideas, we asked Morningstar.com's readers to share what they own in their IRAs and why. To read the complete thread or add your thoughts, click here.
No One 'Right' Way to Manage
Most readers are managing their IRAs as assets they'll tap into during retirement. As such, they're favoring well-balanced portfolios spanning various investment styles and asset classes. "We chose to go with five fairly diverse asset classes for equities: U.S. large cap, U.S. small/mid-cap, foreign, REITs and commodities," notes TinyTuna. "Bonds, we have investment-grade at short and intermediate lengths."
Others, meanwhile, manage at least a portion of their IRA assets as dollars they will leave to their heirs. In some cases, these IRAs are far less diverse in terms of number of investments, styles, or asset classes. "My Roth holds one great investment, Vanguard Capital Opportunity (VHCAX)," writes BoomerGuy. "The Roth is going to my grandson, lucky little guy!" Similarly, farhorizons says, "I'm investing for my unborn grandchildren to inherit my IRA, and I want it to be unbelievably easy to understand and stick with when my wife and I die." As a result, farhorizons' IRA is 100% invested in Vanguard Total World Stock ETF (VT).
A few readers have simplified their investing by maintaining IRAs with one firm. "My Roth and traditional IRAs are with T. Rowe Price and have been for over 20 years," says lionsgate. "Overall T. Rowe Price has been solid." Others, including dancingrain, maintain IRAs with Vanguard.
Recurring Investment Types
Not surprisingly, readers tend to relegate investments that spin off a lot of capital gains and/or income to their IRAs and save the more tax-efficient investments for their taxable accounts. Specifically, dividend-paying stocks and REITs play roles in many of our readers' IRAs.
What other types of investments land in these IRAs? "Actively managed funds since the capital gains distributions can be very high over the long term," says Rathgar. A few readers also mentioned preferreds and leveraged closed-end funds, which can carry double-digit distribution rates.
"We have TIPS only in retirement accounts because of the way they are taxed and actively managed funds mainly in retirement accounts to eliminate taxes on turnover," says retiredgary. "We also use our IRAs for the very small amount of short-term speculation we do since that avoids the tax on short-term gains, if any."
Several readers in addition to retiredgary mentioned TIPS as key elements of their IRA mix. "I have individual TIPS in my (and my spouse's) tax-advantaged accounts, set to mature between the ages of 65-85," writes artsdoc. "I like the idea of a fixed amount coming due each year during retirement which is indexed to inflation."
Finally, target-date funds came up more than once. Chief K keeps about 30% of his traditional IRA in a 2020 target-date fund "because I'm an optimistic 70-year-old (with a pension)."
Several readers own Morningstar Medalist funds in their IRAs. On the bond front, the medalists mentioned include Gold-rated funds Dodge & Cox Income (DODIX), Metropolitan West Total Return Bond (MWTRX), and Vanguard GNMA (VFIJX).
On the equity side, medalists mentioned include Silver-rated Fidelity Contrafund (FCNTX), Bronze-rated T. Rowe Price Equity Income (PRFDX), Silver-rated Franklin Mutual Quest (MQIFX), Gold-rated T. Rowe Price Mid-Cap Growth (RPMGX) and T. Rowe Price Mid-Cap Value (TRMCX), and Vanguard's Dividend Appreciation (VDADX) and Dividend Growth (VDIGX) funds.
Several Vanguard fnds were mentioned multiple times. Among them: Gold-rated Vanguard Wellington (VWELX), Vanguard High Dividend Yield ETF (VYM), and Gold-rated Vanguard Wellesley Income (VWINX). "Anytime I don't know what else to buy, I'm happy to add to Vanguard Wellesley Income," writes Bacholyte. "It's the closest thing to buy, hold, and sleep well that I see."
Susan Dziubinski has a position in the following securities mentioned above: FCNTX. Find out about Morningstar’s editorial policies.