Should riskiest assets be held in ROTH IRA?
Seeking the wisdom of advisors on here:
It's easy to decide what to hold in my ROTH 401K since options are limited, but I am a bit torn on which assets I should be holding in a ROTH IRA vs normal brokerage account.
My intuition tells me to hold the riskiest stuff in my IRA. I pretty much only buy ETFs so even though there can be a lot of volatility, there is a pretty low chance anything goes to zero.
Is this the wrong way to go? Should I be keeping my ROTH IRA low volatility so that I can go all in on the next coronavirus-like event? What is the common wisdom here?
Also curious if you ever recommend mega backdoor IRA strategies to moderate earners. I save about 40k in addition to maxing tax-advantaged accounts, so I think I have the room in my budget.
I’m trying to aggressively grow my Roth IRA so I go risky on it. I am also a younger man (19) so I got time on my side.
Not an advisor, and do not provide investment advice, but have worked in the space previously in a research capacity. I think it is always helpful to think of portfolio allocation in after tax terms. With this lens, Roth accounts have a higher present value after tax compared to other accounts because there is no future tax liability. So whatever you add to these accounts has a higher impact to your after-tax portfolio performance, as they compose a larger percentage of the after-tax portfolio. Assuming you are young / disciplined enough to stay fully invested through a few cycles, it makes a lot of sense to house riskier investments in these accounts to shelter growth from taxes. I take an MVO approach to asset allocation, and have found for my account structure it makes sense to have more fixed income exposure in my individual accounts as opposed to roth when trying to maximize sharpe ratio. Although, I find the opposite is true when setting higher minimum expected return constraints, as my 401k accounts do not have many risky options with high expected returns (think of your typical menu of 401k mutual fund options, nothing too risky there).
Good advice. Coding my own MVO is actually what prompted this question!
My IRA does offer some risky options if I jump through a bunch of hoops, and I wanted to make sure I wasn't doing anything foolish by trusting the math.
Yeah, definitely helps to have a sanity check on this stuff. Surprisingly not a lot of practical literature out there, at least not that I was able to find.
Won't comment on risk tolerance but I use my tax advantaged accounts to own more tax sensitive assets. As an example, I don't own MFs in my brokerage account because I don't like the taxation on dividends and short term cap gains as I'm a long term holder. I only own individual stocks in my brokerage account so I control the taxes (other than dividends). I keep the MFs to my IRAs as they are tax neutral.
Most US equity ETFs can wipe out cap gains at the issuer level, but you still have to deal with them at the investor level. I hold all my high octane stuff in my Roth. (Not financial advice, YMMV, yadda yadda)
Would it make sense to go all in on TQQQ in Roth IRA?
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