When investing in your Roth IRA, focus on assets with high chances of significant long-term growth, such as dividend-paying stocks. Although dividends in regular brokerage accounts are taxed, Roth IRA contributions don’t need to worry about taxes for dividend payments.
Individual stocks can be purchased either via online brokers that charge commission for trades or through robo-advisors that offer low annual fees to manage a portfolio for you.
High-dividend stocks
High-dividend stocks have proven their worth in times of down markets, offering greater returns than their peers with less risk than bonds or other investments like mutual funds. By adding high-dividend stocks to a Roth IRA, you’ll avoid paying taxes when withdrawing funds in retirement.
Find dividend stocks easily using a screener that lists companies by annual dividend yield. A company’s dividend yield can be defined as its annual dividend divided by its stock price; for instance, if shares trade at $30 and their annual dividend totals $1 per share then its yield would be 3.33%.
Look for companies that pay their dividends regularly and ideally increase them over time; such companies are known as dividend aristocrats; they have increased their dividends for at least 25 years. It may be wise to consider companies in various industries like consumer staples, energy and real estate as they tend to be stable with little risk of cutting dividends in the near future.
Value stock funds
Roth IRA investors looking for an economical way to diversify their portfolio should consider adding value stock funds as diversifiers. These funds specialize in stocks with relatively inexpensive share prices and strong business models, and typically perform better during periods of economic instability; some even outperforming the S&P 500 index index!
These investments tend to be less volatile than growth stocks and can help protect portfolio worth over time. Plus, many pay dividends that increase yield. But investors should keep in mind that these stocks won’t grow as quickly.
The Schwab Fundamental US Equity Fund (SCHF) is an ideal option for investors who wish to add value stocks to their Roth IRAs. This ETF offers exposure to consumer staples and tech companies with proven histories of steadily raising dividends over the long-term, as well as exposure to Nasdaq-100 index, which contains many such companies.
Exchange-traded funds (ETFs)
Roth IRA investors enjoy tax-free withdrawals. To maximize long-term growth and consistent income production, dividend stock funds may be an ideal asset that produces consistent income over time. Dividend stock funds provide investments in companies that distribute a portion of profits as dividends that can be reinvested to accelerate portfolio growth.
ETFs offer an easy and cost-effective way to diversify a portfolio, as they track specific indexes while incurring low fees. Investors should evaluate an ETF before investing by looking closely at its management costs, commissions, liquidity and quality before making their decision.
Nasdaq-100 index fund is another popular investment choice, comprised of 100 technology stocks that may present more of a risk than S&P 500, but could yield greater rewards – hence many investors choose this fund over its S&P counterpart.
Bonds
Roth IRAs offer tax-free growth. Unlike taxable accounts that require bond interest taxes when selling bonds, Roth IRAs remain tax-free at all times – helping protect principal and avoid capital gains taxes later when withdrawing money from them.
Bonds can also make for excellent investments for Roth IRAs, particularly municipal bonds that pay tax-exempt income. While yielding investments might not offer as much returns in volatile markets, bonds provide stability during that transitional phase that leads up to retirement and provide steady sources of income. They’re especially recommended for older investors needing reliable income sources in retirement.
Value stock funds provide another excellent way of investing, as they focus on selecting stocks with undervalued characteristics that offer less volatility and can protect your portfolio over time. Many offer dividends which can be reinvested back into the fund to multiply your return.
