04-01-2014, 09:06 PM
(This post was last modified: 04-01-2014, 09:23 PM by earthtodan.)
Hi all,
My Roth IRA is about 10% of my total portfolio, with the rest in a taxable account, and I can't grow the Roth as fast as my taxable account for because of contribution limits. So far I have it mainly stocked with REITs. My reasoning so far has been as follows.
a) 10% is a commonly accepted REIT allocation, and if my Roth is 10% of my portfolio, then I may as well let it be all REITs. After all, I don't want to deal with the extra taxes and headache of holding them in a taxable account.
b) I like yield; I am more confident in the math of reinvested dividends compounding and accelerating my income stream than I am in businesses to continually grow.
c) Since REIT dividends have a tax disadvantage, there is probably some extra yield granted by the market for income tax purposes that you can capture in a Roth.
That was my early thinking, from when I was new to investing and understood "dividend growth" to mainly mean dividend compounding. Now I understand it much better as a "growth of the dividend" philosophy, so I'm more focused on total return, and I'm wondering if I should adopt a different approach:
2) High conviction theory. To take advantage of tax free growth, only put my highest conviction total return holdings in the Roth, since if my convictions prove correct, they will have the biggest gains. This allows for aggressive plays like SBUX.
3) Core holding/protection of principal theory. Since this is my core nest egg, and because I can't claim tax losses, only hold dividend champions with healthy DGRs that are the least likely to collapse. JNJ, BNS, CL come to mind.
4) Total portfolio theory. My Roth should basically mirror my taxable account, since my investment philosophy is the same no matter the technicalities with the IRS. Tweak this a bit by replacing lower conviction holdings with REITs.
I'm 32, and I figure I have about 3 decades until I retire. Thoughts, feedback, tomatoes?
Dan
My Roth IRA is about 10% of my total portfolio, with the rest in a taxable account, and I can't grow the Roth as fast as my taxable account for because of contribution limits. So far I have it mainly stocked with REITs. My reasoning so far has been as follows.
a) 10% is a commonly accepted REIT allocation, and if my Roth is 10% of my portfolio, then I may as well let it be all REITs. After all, I don't want to deal with the extra taxes and headache of holding them in a taxable account.
b) I like yield; I am more confident in the math of reinvested dividends compounding and accelerating my income stream than I am in businesses to continually grow.
c) Since REIT dividends have a tax disadvantage, there is probably some extra yield granted by the market for income tax purposes that you can capture in a Roth.
That was my early thinking, from when I was new to investing and understood "dividend growth" to mainly mean dividend compounding. Now I understand it much better as a "growth of the dividend" philosophy, so I'm more focused on total return, and I'm wondering if I should adopt a different approach:
2) High conviction theory. To take advantage of tax free growth, only put my highest conviction total return holdings in the Roth, since if my convictions prove correct, they will have the biggest gains. This allows for aggressive plays like SBUX.
3) Core holding/protection of principal theory. Since this is my core nest egg, and because I can't claim tax losses, only hold dividend champions with healthy DGRs that are the least likely to collapse. JNJ, BNS, CL come to mind.
4) Total portfolio theory. My Roth should basically mirror my taxable account, since my investment philosophy is the same no matter the technicalities with the IRS. Tweak this a bit by replacing lower conviction holdings with REITs.
I'm 32, and I figure I have about 3 decades until I retire. Thoughts, feedback, tomatoes?
Dan