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Old 06-17-2012, 07:28 AM   #21
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I go with Wellington and Reit Index. Then take the distributions for tax free income and keep it forever with no minimum distributions down the road. DW's plan is the same with Wellesley, High Yld Corp and High Dividend Yld.
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Old 06-17-2012, 09:34 AM   #22
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A Roth IRA is precious future tax-free space. I do not want my Roth IRA invested in the most aggressive equities all the time. Sure, they should have the highest return, but guess what? -> They also tend to have the biggest losses.

Take a look at the Emerging Markets index fund performance was for a few years:
2008 -53%
2009 +76%
2010 +19%
2011 -19%

So if you are prepared for your Roth IRA to lose more than 50% of its value just when you need it, then go ahead and put those risky equities in it. OTOH, a mixture of equities and fixed income might be best.

Or you could get more complicated: When you think equities are overvalued, make a double switch: Put your fixed income in a Roth and switch a corresponding amount in your Traditional into equities. And when you think equities are undervalued, fill up your Roth with equities and put your fixed income in your traditional. If you don't have an idea of over-/under- value-ness, then put a mixture of equities and fixed income in your Roth.

You may call this market timing, but note that you are not changing your portfolio's ratio of stocks to bonds. Instead you are just rearranging where your assets are in your various accounts. If you are wrong, then not much damage can be done, but if you are right, then maybe you reduce your future taxes in a big way.
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Old 06-17-2012, 10:27 AM   #23
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Originally Posted by LOL! View Post

Or you could get more complicated: When you think equities are overvalued, make a double switch: Put your fixed income in a Roth and switch a corresponding amount in your Traditional into equities. And when you think equities are undervalued, fill up your Roth with equities and put your fixed income in your traditional. If you don't have an idea of over-/under- value-ness, then put a mixture of equities and fixed income in your Roth.

You may call this market timing, but note that you are not changing your portfolio's ratio of stocks to bonds. Instead you are just rearranging where your assets are in your various accounts. If you are wrong, then not much damage can be done, but if you are right, then maybe you reduce your future taxes in a big way.
That's an interesting idea. You're right, it's a very limited form of market timing, to try to reduce taxes.

Another reason I keep income producers in my Roth and regular IRA is so that I can convert more of my IRA to Roth under the 15% cap. Once it's all converted I may switch strategies.

One other idea, if you've just converted to a Roth, that's an ideal time to take the most risk. If it pays off, you don't pay taxes on the gain. If it loses, you can recharactertize and get the taxes you paid on the conversion back. The idea is to convert again as soon as you can (watch out for restrictions on how quickly you can convert again), and you'll likely be converting less and therefore pay less in taxes. So, no taxes on a gain, but a tax break on a loss. Recharacterizing is not simple, so try to understand it as best you can before doing it. Just for example, if you convert to a single Roth account, and buy 2 different investments, one that does poorly and one that does great, you can't recharacterize just the bad investment. And I'm not even sure what happens if you convert to an existing Roth.
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Old 06-17-2012, 04:52 PM   #24
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So if you are prepared for your Roth IRA to lose more than 50% of its value just when you need it, then go ahead and put those risky equities in it.
The obvious critique here is that you haven't identified a problem with putting equities into a Roth, you've identified the well known problem of relying on a long-term asset class to fund an immediate need.

Unless you think equities are going down and staying down, I don't see greater equity price volatility as a reason to avoid putting them in a ROTH.

I agree, though that if you think equities are totally overvalued, like in 2000, its better to have them in a taxable account than in your Roth. Better still not to own them at all.
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