Roth IRAs are an excellent way to save money for retirement, and these accounts function very differently from traditional IRAs. You likely already know the account type’s benefits and are ready to open a Roth IRA if you’re reading this piece.
Keep reading for investment advice on the best Roth IRA investments to consider for making your account grow. We’ll also go over what not to put in a Roth IRA, their contribution limits, and more.
Best Investments for Roth IRA Accounts—Top Picks
55% Off: $89 for 1st year; $199 renewal
$99 for first year; $299 renewal
Minimum investment: $500 (no fees)
Best Investments to Consider in a Roth IRA Account
1. Individual Stocks
When people think about high-yield, high-return investment options, most people tend first to consider stocks.
Investing in stocks is an investment you make by purchasing tiny fractions of ownership in a public company. These small fractional ownership pieces are called shares of a company’s stock.
By investing in their stock, you’re making a bet that the company grows and performs well over time.
You can invest in companies known for financial stability that deliver consistent performance, returns and dividends over time—like the “Steady Eddies” recommended by a stock picking service like Motley Fool’s Stock Advisor—or you can go for companies focused on growing rapidly.
If you make wise investments and the company you select grows and performs well, the shares you hold may become more valuable.
In turn, they become more desirable to other investors who now have a willingness to pay more for them than you did.
These appreciating assets allow you to earn a return when you sell your stocks down the road.
One of the best ways for those who want to grow their wealth with minimal risk is by investing in stocks of established companies.
The average stock market return has been about 10% per year over the last several decades.
This doesn’t mean every year will return this amount—some may be higher, some may be lower—remember that’s an average across the entire market and multiple years.
If you own individual stocks, their returns vary even more on corporate performance and future-looking investment decisions.
The stock market is a good investment for long-term investors no matter what’s happening day-to-day or year-to-year; they want long-term capital appreciation in growth companies and dividend stocks alike.
Holding equities over long periods is a surefire way to learn how to increase net worth.
Getting started in the stock market can be a daunting task for beginners, though it doesn’t need to be.
The best investing apps for beginners make the process painless and straightforward to get started and continue growing your investment account balance for many years to come.
Some stock trading apps even allow you to invest for the price of a single share (or less) if they offer fractional shares with apps like Robinhood, M1 Finance and Webull.
→ Growth Stocks
Investing is a way of setting aside money that will work for you so in the future, you can reap all the benefits from your hard work. Investing is a means of achieving one’s better future.
Perhaps said best by legendary investor Warren Buffett, investing is “…the process of laying out money now to receive more money in the future.”
Investing aims to put your money to work and grow it over time. Growth stocks take this to another level by seeking capital appreciation as their main investing goal.
Growth stocks belong to growth-oriented businesses, including industries such as technology, healthcare and consumer goods.
Growth companies traditionally work well for investors focused on the future potential of companies.
Growth companies focus on reinvestment and continuous innovation, which typically leads them to pay little to no dividends to stockholders, opting instead to put most or all its profits back into expanding its business.
Some popular growth companies include firms like Google, Apple and Tesla.
Despite constantly reinvesting in the business, growth stocks are not without risk. Companies can make poor decisions, markets overvalue stocks, and economic mishaps can derail companies with even the best prospects.
However, growth stocks as a whole tend to provide the best return on investment over time if you can tolerate the volatility that comes with them.
But, take risks cautiously. While growth companies have a higher probability of providing an excellent return when compared to other types of investments, you should balance how much risk you are willing to tolerate.
Some companies grow at breakneck speed but have valuations to match. Taking on too much risk can undermine a portfolio and tank returns.
Instead, you might consider investing in a growth-oriented investment fund through a service like M1 Finance with their Domestic Growth and Global Growth Expert Portfolio Pies.
These invest in U.S. and global-based growth equities, respectively, and purchase broad swaths of growth companies and not just concentrate your risk in a handful.
Learn how to find individual growth stocks through services like Motley Fool’s Rule Breakers and Stock Advisor below.
How to Find Individual Companies Worth Buying
The best stock picking services consider all of the variables discussed above when making their selections to subscribers. Have a look at two Motley Fool stock research services subscribed to by close to a million investors.
We think either subscription makes for a great short-listing system to find good stocks worth investigating yourself—and possibly even buying for your portfolio for the long-term.
Both services recommend buying and holding for no less than three to five years, departing with some of the other swing trade alerts services people use to find short-term profit potential in the stock market.
1. Motley Fool Rule Breakers: Best for Long-Term Investors Looking for Growth Stocks
- Available: Sign up here
- Best for: Buy-and-hold growth investors
- Price: Discounted rate for the first year
Motley Fool Rule Breakers focuses on stocks that they believe have massive growth potential in emerging industries. This service isn’t fixating on what’s currently popular, but rather always looking for the next big stock.
The service has six rules they follow before making stock recommendations to subscribers:
- Only invest in “top dog” companies in an emerging industry – As Motley Fool puts it: “It doesn’t matter if you’re the big player in floppy drives — the industry is falling apart.”
- The company must have a sustainable advantage
- Company must have strong past price appreciation
- Company needs to have strong and competent management
- There must be strong consumer appeal
- Financial media must overvalue the company
As you can see, before recommending a stock to users, Rule Breakers considers a number of factors. In short, the service mainly looks for well-run companies in emerging industries with a sustainable advantage over competitors, among other factors.
And their rules seem to pay off if their results have anything to say about it.
Over the past 15 years, Rule Breakers has almost doubled the S&P 500, beating many leading money managers on Wall Street. Their results speak for themselves and easily justify the affordable price tag of $99 for the first year.
What to Expect from Motley Fool’s Rule Breakers:
The service includes three primary items you can expect to receive:
- A listing of Starter Stocks to begin your Rule Breakers journey with their “essential Rule Breakers”
- 5 “Best Buys Now” opportunities each month
- Two new stock picks each month
You’ll receive regular communications from the stock picking service with their analysis and rationales for buying stocks meeting their investment criteria.
If you’re unhappy with the service within the first month, you can receive a full membership-fee back guarantee.
Motley Fool Rule Breakers
67% off: $99/yr.*
- Motley Fool Rule Breakers is an investment advisory service that provides insight and recommendations on potential market-beating growth stocks
- Picks are centered around emerging industries in an attempt to pick tomorrow’s stock market leaders today
- Strong performance track record
- Discounted introductory rate
- Consistent outperformance of S&P 500
- High-growth stocks carry volatility
- High renewal price
- Not every stock has positive returns
2. Motley Fool Stock Advisor – Best for Buy and Hold Investors
- Available: Sign up here
- Best for: Buy-and-hold growth investors
- Price: Discounted price for the first year
The main difference between Motley Fool’s services is the type of stock pick recommendations.
Stock Advisor primarily recommends well-established companies. Over a decade ago, they advised subscribers to buy companies such as Netflix and Disney, which have been majorly successful.
As a subscriber, you’re granted access to their history of recommendations and can see for yourself how they have done over the years.
According to their website, the Motley Fool Stock Advisor stock subscription service has returned of 374% since their inception in February 2002 when you calculate the average return of all their stock recommendations over the last 17 years.
Comparatively, the S&P 500 only had a 125% return during that same timeframe.
What to Expect from Motley Fool’s Stock Advisor:
The Stock Advisor service provides a lot of worthwhile resources to subscribers.
- “Starter Stocks” recommendations to serve as a foundation to your portfolio for new and experienced investors
- Two new stock picks each month
- 10 “Best Buys Now” chosen from over 300 stocks the service watches
- Investing resources with the stock picking service’s library of stock recommendations
- Access to community of investors engaged in outperforming the market and talking shop
The service has a discounted rate for the first year and has a 30-day membership refund period. Consider signing up for Stock Advisor today.
Motley Fool Stock Advisor
- Motley Fool Stock Advisor provides a list of five stocks they believe deserving of your money today.
- Stock Advisor also lists “Starter Stocks” they believe should serve as a portfolio’s foundation.
- Limited Time Offer: Get your first year with Stock Advisor for $79 (vs. $199 usual value)
- Discounted introductory price
- Strong outperformance above S&P 500
- High overall average return for stock picks
- High renewal price
- Not every stock is a winner
→ Dividend-Paying Stocks
Dividend stocks are still a compelling option in some cases, despite being associated with lower long-term returns than many other asset classes.
Dividends are regular cash payments issued to shareholders. When thinking of high-yield investments, these likely represent the most direct way to consider how an investment can put money back in your possession.
Because of this direct cash transfer, dividends also tell a lot about the risk profile of a stock.
When thinking about the risks involved with a stock that pays dividends (or not), consider some of these factors:
- The dividend should be far more consistent and declared in a similar (or growing amount) each quarter. Whether the stock goes up or down, the dividend comes to your brokerage account just the same. Even if your stock underperforms for a while, these dividends should give you something of value and make it easier to hold onto the stock during a market swoon or period of underperformance.
- Dividends tend to buffer significant falls in price, assuming economic circumstances don’t warrant cutting dividends. Also, dividend payments remain fixed in dollars per share terms, but dividend yields can rise when a stock’s price falls. That measure represents the amount of money you can expect to return based on the company’s current share price in a year. As a stock’s price falls, you’re paying less for that same dividend—assuming the company doesn’t cut it.
- Dividends represent stability to investors. Each period, the company needs to have a certain amount of cash go out the door to investors. This minimum level of cash flow going off the balance sheet means companies need to be less risky and plan for this ongoing cost as part of their corporate strategy.
As mentioned above, companies can—and some will—slash their dividends in times of economic uncertainty. While usually one of the last items for a company to cut, because it usually results in the stock plunging—people buy dividend stocks for their consistency.
When the company threatens that consistency, investors tend to sell in favor of other investment options.
Look for companies with a consistent history of dividend growth and high yields.
Conservative investors tend to find more comfort in these stocks because they have less risk tolerance and still get rewarded for their investment choices through regular dividend payments.
Find the Best Investments Right Now for Your Situation
You can also take the following investment options to get a quick sense of the types of high-yield investment options that are right for you. These might be the best investments right now for your needs.
Borrowers, such as companies or the government, issue bonds to raise money and fund their operations. The bond works as a loan from investors.
Investors make money from bonds in two ways:
- holding them until the maturity date and collecting interest payments
- selling them at a higher price to someone else before maturity.
Companies send interest payments on bonds at regular intervals in predictable amounts if they have fixed rates.
While you want your Roth IRA to consist mainly of more aggressive investments, bonds make a solid addition to investment portfolios as you approach retirement age.
There are several different types of bonds, and their risk levels vary. Below, we walk through some of the common bond types.
U.S. treasury bonds, or “T-bonds,” are considered one of the safest types of bonds (nearly risk-free) because the federal government backs them. They are low risk but also have low interest rates.
The bonds are issued in 20 or 30-year terms. Investors receive fixed-rate interest payments every six months until the bond matures.
Treasury Inflation-Protected Securities (TIPS) are U.S. government bonds that protect against inflation. Investors also receive regular, modest interest payments.
Standard bonds can lose value to inflation unless the interest rate is high enough. For TIPS, the U.S. Treasury adjusts the par value every year to match inflation.
These bonds don’t perform well if deflation occurs but perform very well when there is high inflation.
You can buy TIPS straight from the government or through a brokerage. To have it used in a retirement account, you should purchase them through a brokerage. TIPS come in terms of 5, 10, and 30 years.
The gain from the inflation adjustment is considered taxable income. Since gains in a Roth IRA account aren’t taxed, TIPS fit well with these retirement accounts.
Municipal bonds, also known as munis, are issued by states, counties, cities, and other types of nonfederal government entities. They fund government projects, such as creating roads or building schools.
There are short-term (about one to three years) and long-term (over ten years) municipal bonds.
You get tax benefits for holding these bonds. For example, you might not have to pay federal taxes on the interest and sometimes might be exempt from some state and local taxes.
As a result, high-income individuals look toward munis for earning interest as a tax-advantaged passive income idea.
Companies issue corporate bonds to raise money. Investors purchase these bonds and receive interest payments (usually every six months) until the bond matures. Once the bond matures, they receive the principal amount back.
Fixed-rate bonds are the most popular, but some offer floating-rate, convertible, or zero-coupon bonds. Floating-rate bonds have variable interest rates.
Convertible bonds let companies pay you back with stock rather than cash. With zero-coupon bonds, you pay less than face value and get the full value once it matures. There are no interest payments.
Corporate bonds, like most bonds, are stable as long as the company does well. However, the long-term returns are lower than those of well-performing stocks.
The returns are higher for corporate bonds than treasury bonds, but you pay federal income taxes on the bond interest (which you don’t for muni bonds). You can avoid being taxed on interest if you hold the bond in a Roth IRA.
A bond fund, sometimes called a debt fund or income fund, invests in bonds or other debt securities, such as mutual funds or exchange-traded funds (ETFs).
It might focus on a particular bond or debt security type, such as government bonds, corporate bonds, or mortgage-backed securities.
Alternatively, it might hold several different types of bonds and debt securities. The various securities in the bond fund will vary in terms of risk.
Investors receive stable interest payments or can choose to forgo payments and instead reinvest dividends. An advantage of these funds is the built-in diversification.
3. Exchange-Traded Funds
Thanks to events like the Gamestop market mania of early 2021, or the sudden rise of Dogecoin, SPACs or other meme stocks, many people expect quick and high returns on investing in the stock market. But because of its volatility, this is not guaranteed.
One way to diffuse this risk and still earn good returns over time, consider using index funds as an ETF to build diversification into your portfolio.
For beginning investors, using these funds to build entire investment portfolios can make a lot of sense. They provide instant diversification with low costs on an all-in-one investment. Over time, these are safe investments that build considerable wealth.
To understand what makes diversification powerful, let’s go through a thought experiment on these long-term-oriented, low-risk investments.
What’s better than one company that generates an average annual return of 10%? Two companies that earn an average annual return of 10%.
What’s even better than that? Thousands of companies taken together that generate this kind of return consistently.
Why? Because any one company can befall a disaster, suffer a significant setback or even go out of business. Your risk tolerance need not be as high to invest in these safe investments (over long periods).
If you own shares of a fund holding stock of different companies, you avoid torpedoing your portfolio because you spread the risk out to several companies.
While markets overall can drop in tandem on important economic news, by holding several companies in index funds simultaneously, your portfolio won’t take on any added risk of specific companies failing.
If you can hold through this market tumult and continue to stand firm for years to follow, the market has always rewarded you in the last century.
As an example, think back to the Great Recession in 2008. If you had owned an S&P 500 index fund, your eyes might have watered as you saw your position lose almost half its value in just a few months.
But, if you managed to hold, your same S&P 500 index fund investment would have averaged 18% per year over the next decade. Just imagine if you’d bought more of the index fund when it fell!
The lesson here? If you can see your stock portfolio as an illiquid basket of securities and can only add to them, you can rest easy knowing your money will come back strong over the long term.
4. Mutual Funds
Investing can be a daunting task for any investor, but many believe that young investors benefit from setting up mutual fund accounts early.
These investment vehicles act like ETFs by purchasing a bundle of securities attempting to fulfill some stated investment aim.
Mutual funds build portfolios of underlying investments through pooling your money with that of other investors.
This creates a more extensive collection of stocks, bonds and other investments, called a portfolio. Most come with a minimum initial investment requirement.
When a mutual fund’s securities’ values change, the net asset value (NAV) is adjusted accordingly by calculating how much more—or less—the fund would have to sell its investments for to fulfill shareholder redemptions.
This price changes based on the value of the securities in your portfolio at the end of each market trading day.
Owning a mutual fund in and of itself does not grant the investor ownership to the underlying securities, and they only own the mutual fund shares themselves.
Mutual funds can be stock funds, bond funds, a combination of them or investments in other assets.
Retirees tend to hold a combination of stock funds and bond funds in their retirement portfolios because they both can pay dividends and deliver the upside of stock investments.
Mutual funds come in two types: passively managed and actively managed mutual funds.
Managers of an active mutual fund management company buy and sell investments based on their stock research and the fund’s investment strategy.
The goal of portfolio management is typically to outperform a comparable benchmark—a commonly used but risky approach.
Passively managed mutual funds simply attempt to recreate the performance of a benchmark index like the S&P 500, Dow Jones or Barclays Corporate Bond Index. These are simply index funds but in mutual fund form.
You can invest in mutual funds through:
- IRAs (Traditional and Roth IRAs)
- 457 plan
- 529 Plans
- Education Savings Accounts
All of these types of investment accounts will allow you to reap the long-term rewards of compounding returns in a diversified investment.
Robo-advisors use computer algorithms to create and manage investment portfolios. Investors using robo-advisors enjoy the low fees, how easy they are to use, and that they can create well-diversified portfolios.
If you aren’t an expert investor, want to save time on investment decisions, or both, robo-advisors might be a good fit for you. They have grown in popularity in the last decade and show no signs of stopping.
These services tend to assess fees in one of two ways:
- fixed monthly fee model
- percentage of assets under management
As an example of the former, the Acorns micro-investing app allows you to contribute small amounts of money through a feature pioneered by the company called “Round-ups.”
This works by linking your Acorns account to a credit or debit card and allowing the app to round each purchase to the nearest dollar.
This amount gets invested automatically on your behalf through fractional share purchases.
You answer a questionnaire at account opening to understand your investment goals, risk tolerance and preferences.
Based on your responses, it builds a diversified portfolio of stocks and bonds in alignment with these answers.
The latter fee model has the robo-advisor assess an ongoing fee as an amount of your portfolio managed with the platform.
You might instead consider a free option from M1 Finance. This app doesn’t assess a fixed fee nor assets under management fee for investing through the platform’s primary service.
Further, M1 Finance allows you to build customized portfolios or rely on prebuilt, expert-crafted portfolios to meet your investment objectives. And getting started doesn’t need to include a significant opening deposit.
You can start investing with a small amount of money and contribute to building your portfolio balance over time.
If you can make a minimum qualifying deposit at account opening during special promotions, M1 Finance will offer you a sign-up bonus, acting as a way to jumpstart your account with free stocks.
With M1 Finance, you can get automated investing for free, and it will automatically rebalance your investments to align with your instructions.
The app also provides educational resources and tools so you can understand the best ways to grow your retirement savings.
Learn more about this app in our M1 Finance review.
M1 Finance | Smart Money Management
Basic: Free. M1 Plus: $125/yr.
- M1 Finance’s Smart Money Management gives you choice and control of how you want to invest automatically, borrow, and spend your money—with available high-yield checking and low borrowing rates.
- Basic account includes an FDIC-insured checking account and an M1 Visa debit card.
- Upgrade to M1 Plus and unlock perks including 1% cash back, 4.50% APY, ATM reimbursements, and 0% international fees.
- Invest in stocks, ETFs, and cryptocurrencies.
- Special Promotion: Open an account and get 3 months free of M1 Plus* ($31.25 value).
- Robo-advisor with self-directed investing capability
- Attractive cash-back and APY opportunities with M1 Plus subscription
- Doesn’t support mutual funds
- Doesn’t allow trading throughout the trading day (1 trading window for Basic, 2 for M1 Plus)
- High cost for M1 Plus service tier
*Your free trial (a $31.25 value) begins the date you enroll in the M1 Plus subscription, and ends 90 days after (“Free Trial”). Upon expiry of the Free Trial, your account is automatically billed an annual subscription fee of $125 unless you cancel under your Membership details in the M1 Platform.
Indirect Real Estate Ownership
Real estate is well known to be a top strategy to hedge an investment portfolio against inflation, and it also tends to beat the stock market due to the ability to leverage your returns.
However, purchasing entire properties on your own is expensive, risky, and time-consuming.
Fortunately, there are several ways to include indirect real estate ownership in your retirement accounts.
5. Crowdsourced Real Estate Investments
It might come as little surprise, but numerous types of real estate investments appeal to many people for multiple reasons:
- the tangible nature of the investment
- low-correlation with the stock market
- multiple return components (asset appreciation and rental income)
- tax advantages
However, the hands-on factor of owning, renovating and maintaining your property as well as acting as a landlord deters many people from getting started.
Thanks to the advent of fintech, or the use of technology to enhance and automate certain financial transactions and processes, many companies now offer the opportunity to invest in real estate with or without owning property.
Currently, one of the leading (and easiest) ways to get started with real estate investing is through crowdsourced lending or purchasing.
Several online platforms cater to this investor demand by providing various levels of service, investment options, and different points of investment in the real estate value chain.
This results in you avoiding any aspect you might not wish to participate in, such as owning or managing properties but still gaining exposure to these alternative investment options.
Depending on the type of investment you wish to make in real estate crowdfunding ventures, you have multiple options available to you. Some of the most popular options include:
FundRise → Investing in Real Estate Portfolios
FundRise offers investors the chance to invest in real estate portfolios, or several properties in one investment. In theory, this diversifies your investment risk while providing you access to several properties simultaneously.
To date, the most popular real estate investment platform offering a portfolio approach is Fundrise.
This investment platform provides several options for you to review and invest your money. Their available portfolio options include:
- The Starter Portfolio – This option allows investors to start investing in real estate with as little as $10.
- Core Portfolios (Supplemental, Balanced, and Long-Term Growth) – Each of these “Core Portfolios” comes with a higher minimum investment of $1,000 and targets a different investment objective. Supplemental aims to provide additional passive income from real estate investing on the Fundrise platform, Long-Term Growth invests money for the primary goal of capital appreciation, while Balanced focuses on both of these investment objectives. By offering these investment portfolio options, investors can choose which investment objective best aligns with their financial goals.
Fundrise | Start Investing in Real Estate w/$10
0.85% AUM Fees for eREITs
- Regardless of your net worth, you can now benefit from real estate’s unique potential for generating consistent cash flow and long-term gains with Fundrise starting as low as $10.
- Consider diversifying your portfolio with real estate.
- Special Offer: Sign up for an account and make your first investment to receive $10 worth of free shares.
- Low minimum investment ($10)
- Accredited and non-accredited investors welcome
- IRA accounts available
- Highly illiquid investment
Related: 11 Best Fundrise Alternatives [Accredited & Non-Accredited Apps]
GROUNDFLOOR → Investing in Fix and Flips
GROUNDFLOOR offers short-term, high-yield real estate debt investments to the general public.
The service targets fix and flips, better known as fixer-uppers for short-term debt instruments ranging between 3-18 months in length.
If you have interest in fixer-uppers but don’t have the personal expertise to select the right property nor choose the best contractors for their value, you should consider GROUNDFLOOR.
The service aims to make an asset class otherwise inaccessible to the general public and has averaged 10% annual returns. You only need $10 to begin investing on the platform.
Groundfloor | Invest in Fix-and-Flips
- Groundfloor is a crowdsourced real estate investing platform which offers high-yield, short-term real estate debt investments.
- Offers collateralized, secured real estate debt with 1-month, 3-month, and 12-month terms.
- Has delivered consistent 10%+ returns over past eight years with repayments received in 6-9 months on average.
- Offers after-tax and IRA investment options.
- Special offer: When you fund your account with at least $100, you will receive a $10 credit to invest on Groundfloor*.
DiversyFund → Investing in Multi-Family Units
DiversyFund is a widely-known and trusted platform for people looking to invest in real estate.
This service caters toward individuals looking to invest in multi-family units like apartment buildings.
The service targets properties they believe will appreciate with added investment after purchase.
They renovate properties with a medium-term time horizon (~5 years) and look to flip them to other investors, yielding investors cash returns while invested and a capital gain once sold.
The service has developed expertise in the multi-family real estate market with apartment complexes containing 100-200 units that produce monthly cash flow.
You can start investing in one of DiversyFund’s portfolios for as little as $500.
DiversyFund | Multi-Family REITs
Minimum Investment: $500
- DiversyFund targets multifamily properties between 100-200 units with positive cash flow.
- The company reinvests these funds into renovations to improve the property and resell it in ~5 years at an appreciated value.
- Look at the the Growth REIT investment w/$500 min.
- Makes apartment investing accessible
- Low investment minimum ($500)
- Long holding period (~5 years)
6. Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) pool investors’ money to buy and manage income-producing real estate properties. These are typically high-end or commercial properties.
Investors receive dividends, often quarterly, which are usually significantly higher than those of dividend-paying stocks.
REITs are excellent additions to a Roth IRA because you can benefit from dividend compounding and tax-free profits.
The taxes on REIT dividends can be complicated when purchased outside of a retirement account, but you can avoid that complexity by having them in your Roth IRA.
Streitwise is a trusted real estate investment company and worth looking into if you’re interested in REITs. It’s open for both accredited and non-accredited investors.
It’s compatible with several self-directed IRA custodians, and the list of who they have worked with so far includes:
- Advanta IRA
- Community National Bank
- Equity Trust
- Forge Trust (previously IRA Services Trust)
- Goldstar Trust
- Millennium Trust Company
- New Direction Trust Company
- New Vision Trust
- Pacific Premier Trust
- Strata Trust Company
Streitwise has no exclusivity contracts, so even if your preferred custodian isn’t listed, Streitwise might still be able to work with them.
Streitwise | Start Investing in Private REITs Today
- Begin earning passive income in private real estate for ~$5,000.
- As of 2Q2022, Streitwise paid a quarterly dividend at an annualized rate of 9.2% since 2017, net of fees. This more than doubles the average paid by public REIT alternatives.
- Strong performance track record vs. industry peers
- Lower fees than other funds (2%/yr, w/o syndicator fees)
- High investment minimum (~$5,000)
Related: 11 Best Non-Stock Investments [Alternatives to the Stock Market]
7. Direct Real Estate Ownership
When people think of investing in real estate, they usually think of direct real estate ownership.
You might buy a personal home and then consider purchasing single-family or multifamily homes with a plan to rent them out or “flip” them for a profit.
While television shows make this process look easy, you should only consider this investment option for a Roth IRA if you are a professional real estate investor.
The IRS severely penalizes investors if they commingle these assets with other investments they hold or if they need to contribute additional money to finance the acquisition.
It’s precarious to use this strategy for a Roth IRA unless you know all the rules and are an expert in the process.
Direct real estate ownership can be an excellent investment, but it isn’t recommended to include it in a Roth IRA.
While you want the bulk of your retirement savings to consist of more standard investments, it can be profitable to include a couple of your favorite alternative investments as well.
Alternative investments can often outperform traditional investments. Note that these investments need to be held in a self-directed IRA.
→ What is a Self-Directed IRA?
A self-directed individual retirement account (SDIRA) is a traditional or Roth IRA variation that allows you to hold alternative investments that are sometimes prohibited from standard IRAs. The investor directly manages the account.
Not all SDIRA custodians allow the same investments, so make sure to sign up for one that offers the alternative investment(s) you want the most.
Make sure to conduct due diligence for any alternative investments you include in your self-directed IRA.
8. Fine Art
If you prefer to look at paintings over jewelry, collectible art may be an investment you should consider. When looking into building wealth, not all art investments are created equal.
It’s important the art you invest in comes with certificates of authenticity.
Additionally, fine art will most likely increase in value if a well-known artist created the piece. This applies especially to an artist who has passed away and therefore cannot release new pieces.
Buying famous artwork on your own carries a high price tag and comes fraught with risk for those without the knowledge of the industry.
To reduce your costs and risk, you may want to consider using Masterworks or a similar platform.
Masterworks allows you to purchase fractional shares of ownership of famous paintings. For example, you might have partial ownership of a painting done by Claude Monet.
Masterworks’ expert art collectors specifically choose paintings they believe will have the highest appreciation rates and lowest risk.
This is a wonderful option for people who want to invest in art, but don’t know how to find private buyers on their own, don’t have the funds to purchase these costly works of art, or aren’t sure how to store them properly.
The minimum investment to get started through Masterworks is $1,000. It should be noted that this type of asset is illiquid and can’t be sold as quickly as other Roth IRA investments.
If you’re passionate about art and looking for a long-term investment, you may be able to capitalize on blue-chip paintings appreciating in value. Sign up to learn more.
AltoIRA is one of the self-directed IRA platforms that allows you to invest in MasterWorks. You might consider the SDIRA platform prized for its transparency and low fees relative to other options.
Masterworks | Invest in “Blue Chip” Art
- The Masterworks team reviews hundreds of pieces of art for sale and selects the best ones for purchasing and later reselling at a gain.
- Learn more about investing in “blue-chip” art by signing up for this alternative investment service.
- Access to art investments with reasonable minimum
- Access to dedicated support rep
- Investing requires a call screen consultation
- High fees
9. Fine Wine
Want your retirement profits to get better as they age, much like fine wine? Fine wine is not only delicious, but it can be a profitable alternative investment.
As an investment rationale, consider a few things:
- As the amount of wine from specific years and regions diminishes, the value goes up.
- Wine isn’t directly correlated with the economy and can hedge against inflation.
- If nothing else, in the event your wine doesn’t sell, you can still drink it.
Unfortunately, buying your favorite wine and sticking it in the far corner of your basement isn’t considered a strategic retirement plan, and it doesn’t provide the tax benefits of Roth IRAs.
If you plan to make money from wine, you’ll want to use a service like Vinovest or Vint.
Vinovest’s wine experts strategically buy authentic wines. They store it for investors and ship it to buyers (or to the investor if you decide to drink it yourself).
Vinovest helps you build a portfolio that fits your risk tolerance, and the minimum balance to get started is $1,000.
Vinovest | Invest in Fine Wine for Only $1,000
- Vinovest allows you to invest in fine wine and whiskey—investments that aren’t correlated with the stock or bond markets.
- Initial questionnaire helps Vinovest build a wine portfolio based on your investment goals
- Talk with a portfolio advisor to learn more about wine investing or improve your portfolio
- Low $1,000 minimum balance required to start
Looking for a more affordable way to start investing in wine? You can begin investing with Vint, another wine investment platform, for less than $100.
Vint charges no annual fees and makes investing in wine simple while hosting events and discussions with investors. It’s not just an investment platform but a community as well.
Consider opening an account with Vint to learn more about it and whether it makes sense as a Roth IRA investment option.
Vint | Securitized Fine Wine Investing
- Vint is a wine investment platform that provides a chance to own SEC-qualified shares of fine wines from around the world
- Offering an investment opportunity non-correlated with traditional markets, the company offers low barriers to entry, with minimum investments as low as $50
- The service has no annual fees, instead charging a sourcing fee per offering, amounting to 0.5%-10%
Bitcoin and other cryptocurrencies are becoming more mainstream every day. While the volatility is high in the short term, Bitcoin has shown to be profitable overall.
If you invest in Bitcoin and want the tax advantages of holding it in a self-directed Roth IRA, consider opening an SDIRA for bitcoin investing through Bitcoin IRA.
It’s the first and largest cryptocurrency IRA platform, and it allows you to buy and sell on any day, at any time of the day.
You can easily track pricing and your portfolio performance through the app.
The app also has educational information. Bitcoin IRA keeps your money safe because assets are insured for $100 million through BitGo Trust.
Users can earn interest payouts on both the cash and crypto in their retirement accounts, making them income-generating assets.
It’s not recommended to go “all in” on Bitcoin and other cryptocurrencies, but including it is a great way to diversify your portfolio.
Bitcoin IRA | Buy Bitcoin for Retirement
- Invest in Bitcoin for your retirement through a SDIRA with BitcoinIRA
- Buy & sell online 24/7 with $100m of Custody Insurance from BitGo Trust and their insurance provider, Lloyd’s of London
- Use price tracking, reports and more to follow your BitcoinIRA balance
What Not to Invest in a Roth IRA (Low-Risk, Low-Return Assets)
Low-risk assets aren’t the best fit for Roth IRAs. While it’s fine to have low-risk investments, your Roth IRA isn’t where you should store them.
Focus on growth-oriented investments instead because the growth is tax-free.
Money Market Funds
Money market funds are a type of short-term mutual fund. A significant advantage of money market funds is that they are highly liquid investments.
This advantage is wasted in Roth IRAs, where you are meant to hold long-term investments.
Money market funds work better as short-term investments rather than as long-term retirement savings.
Certificates of Deposit
The returns for certificates of deposit (CDs) are substantially lower than the S&P 500 and many other investments.
Using space in Roth IRAs for CDs means you have less room for investments that have higher yields.
Most CDs aren’t designed to be held for several decades because inflation diminishes some of the returns.
CDs often have maturities of no longer than five years and are not the best fit for an IRA unless you are nearing retirement with a need for cash.
Other Low-Risk, Cash Equivalent Securities
Cash equivalent securities are any short-term investment securities with 90 days as the maximum maturity period.
These investments don’t earn much interest, so they don’t need Roth IRAs to provide a tax shelter.
Related Questions for Roth IRA Investments
What is an Individual Retirement Account (IRA)?
An individual retirement account (IRA) is a tax-advantaged savings and investment account that helps you save for retirement. The four most popular types of IRAs are traditional, Roth, SIMPLE, and SEP.
Depending on the type of IRA you have, you can make contributions in one of two ways.
- Tax-Deferred: Make tax-deductible contributions today and defer paying taxes until you withdraw money during retirement
- After-Tax: Make contributions that make you pay taxes today but grow tax-free, allowing you to skip paying taxes when you withdraw the money later.
Using IRA accounts to save for retirement in a tax-smart way carries significantly more value than investing on your own through a traditional brokerage account on an stock market app.
You can, of course, do both by holding money in tax-advantaged investments as well as a traditional investment account.
Having the flexibility and liquidity to use after-tax brokerage account funds can prevent you from needing to withdraw funds from your retirement accounts prematurely and facing penalties.
In most cases, if you withdraw money from an IRA before age 59 1/2, you may face not only taxes but penalties. This doesn’t apply if you withdraw contributions made to a Roth IRA.
What is the Difference Between a Traditional and Roth IRA?
Traditional IRAs and Roth IRAs have different tax advantages. With a traditional IRA, you deduct your contributions during the tax year when you file or add the money to the pre-tax account.
When you withdraw money after retirement, you pay taxes on the whole amount based on your current income at the time of withdrawal.
If you haven’t already begun taking a specified minimum amount of distribution by age 72, called required minimum distributions or RMDs, the IRS will require you to do so.
You must comply with a schedule of withdrawals to ensure all traditional IRA funds get withdrawn and you pay the taxes owed on them.
You contribute after-tax dollars to a Roth IRA at your current tax rate. Your investment earnings grow tax-free, and when you withdraw money during retirement, you don’t pay taxes again.
Compare your current income level to what you expect it to be during retirement to decide which is more beneficial for you right now.
If you think your tax rates now present a higher tax cost, consider a traditional IRA.
Conversely, if you think your taxes will go up in retirement, contributing to a Roth IRA now makes more sense for your situation.
What Types of Investments Should You Hold in a Roth IRA?
The best Roth IRA accounts start with riskier investments because they are more likely to earn greater returns over more extended periods.
Your investment gains from a Roth IRA aren’t taxed, so you don’t lose any growth to income taxes.
Further, because these accounts hold retirement assets you likely won’t need for several years, you want to consider investing in riskier, high-return investments.
As such, you’ll want to avoid filling your Roth IRA with low-risk securities. Aim for building a more aggressive portfolio that holds the types of investments explained below.
Can You Choose Your Own Investments in a Roth IRA?
Yes, you can choose your own investments in a Roth IRA when you open it with an online brokerage. Most of the major brokerages make this process simple.
You can search for whichever stock, ETF, mutual fund, or other investment you’re interested in and place an order.
Often, there will be additional information available for you to look over before making decisions.
Should You Put Stocks in a Roth IRA?
Stocks, particularly growth stocks and dividend-earning stocks, are an excellent choice for Roth IRAs.
With established companies, stocks’ value can rise significantly when held as a long-term investment.
You can choose your stocks or buy ETFs and mutual funds that contain your favorite equities.
Individual stocks are more volatile than ETFs and mutual funds, but they also have more growth potential.
Stocks have a place in the best Roth IRA portfolios and should be most prominent with portfolios that are still a long time away from retirement.
As you approach retirement, stocks should make up less of your overall portfolio.
Related: How to Invest in Blue Chip Stocks for Starters [Steady Eddies]
How Much Should I Invest in My Roth IRA Monthly?
The maximum amount you can contribute to a Roth IRA for 2022 is $6,000.
If you are age 50 or older, you can add an extra $1,000 as a “catch up contribution,” making the maximum $7,000.
If you can afford it, it’s always wise to max out your Roth IRA. If your maximum contribution is $6,000 (most people), then you should contribute $500 each month of the year to reach the maximum.
How Do You Pay Taxes on Roth IRA Contributions?
Your Roth IRA contributions are made with after-tax money, meaning you’re paying income taxes on your contributions right away.
Since you pay taxes on the money upfront, Roth IRA investors don’t have to pay taxes when they make withdrawals, and you don’t have to pay capital gains taxes within Roth IRAs either.
What are the Roth IRA Income Limits?
For 2022, if you’re a single tax-filer, Roth IRAs’ contributions begin to phase out once your income reaches $129,000. Contributions aren’t allowed once earnings are over $144,000.
If you are married filing jointly, the 2022 income limit phase-out begins at $204,000. You can’t make contributions once earnings are over $214,000.
What is the Maximum Annual Contribution to a Roth IRA?
The maximum annual contribution to a Roth IRA in 2022 is $6,000. For people aged 50 and older, the maximum is $7,000. You can’t contribute more than your taxable compensation for the year.
Remember, the limit is for all IRA accounts. If you use both a Roth IRA and a traditional IRA, you can only contribute $6,000 total between them.
What is Tax-Deferred vs. Tax-Free Growth?
When something is tax-deferred, it means you have to pay taxes on it, but not until later.
For example, with a traditional IRA, your money is contributed pre-tax by your employer.
Alternatively, if you’re self-employed, you can deduct your traditional IRA contributions each year.
Either way, you aren’t paying taxes on your contributions the year you make them.
Instead, you pay taxes on the money when you take withdrawals or distributions.
You’re taxed at the rate of whatever income bracket you are in when you take withdrawals.
Your money is not tax-deferred with a Roth IRA; you add post-tax money.
Tax-free growth means you don’t have to pay taxes on the returns your account has made over the years.
Unfortunately, traditional IRAs don’t provide tax-free growth.
In a Roth IRA, your contributions allow tax-free growth.
When you make withdrawals during retirement, you don’t have to pay taxes on your contributions, which hopefully have grown substantially in value over the years.
Related: What is an IRA and How Does it Work? [IRAs for Dummies]
Should I Invest in a Traditional or Roth IRA?
If you expect your income (and therefore tax rates) to be lower in retirement than they are now, a traditional IRA is likely the better fit for you.
Since you pay taxes at your income tax rate in retirement, you pay less in taxes overall.
Let’s say you expect your income to be higher in retirement than it is this year. In that situation, you should open a Roth IRA.
You’ll pay less in taxes now and then don’t have to pay taxes on the contributions (or gains!) when you take money out during retirement.
If you’re unsure which is the better fit, you’re allowed to have a Roth IRA and traditional IRA and contribute to both.
However, the annual contribution limit applies to both accounts combined.
If the annual contribution limit is $6,000, that means you can’t contribute $6,000 to each. You have the split the $6,000 between them as you see fit.
You can even open a custodial Roth IRA for your kid if he or she has earned income for the year.
Do Roth IRA Accounts Charge a Management Fee?
Some, but not all, Roth IRAs charge a management fee. If you’re looking to save money on fees, look into Roth IRAs that don’t have these fees.
Even if these account fees don’t apply, there may still be expenses for managed accounts or funds.
The best Roth IRA for you is whichever will help you have the most money when you reach retirement, and fees affect that.
Working with a financial advisor could also be a solution worth considering for your needs.
Financial advisors work with retirement savers on their retirement planning and assist with related financial advice.
Robo-advisors work to accomplish many of these goals, but individualized advice might be something worth considering.