Best Mutual Funds for Roth IRA

Best Mutual Funds for Roth IRA

A Roth IRA is an attractive financial savings vehicle for many people. Unlike a traditional IRA, you can use after-tax dollars to fund the account, meaning you won’t pay anything once you make your withdrawal.

If you want to prepare for the future, managing your retirement savings through a Roth IRA is a great idea. Here’s a guide that will help you understand Roth IRAs and mutual funds, as well as how you can get started with them.

Gold Mutual Funds

Understanding Roth IRA and Mutual Funds

Below is an overview of the basics you should know about Roth IRAs/mutual funds:

Concept of Roth IRA

A Roth IRA is an “individual retirement account.” It allows people to contribute after-tax income and make tax-free withdrawals when they reach a certain age. Roth IRAs are slightly different from other investment tools like a taxable brokerage account.

Due to the nature of these IRAs, dividends growing tax-deferred isn’t an option. Instead, you’ll pay taxes at the time of contributing.

Benefits of Roth IRA

Some of the benefits include:

  • Tax-free growth
  • Qualified withdrawals
  • No mandatory withdrawals
  • No income taxes for inherited accounts

If you want to get the most benefits out of your Roth IRA, however, we recommend you invest less tax-efficient funds. Real estate investment trusts, for example, tend to make regular income payments. Also, actively managed stock funds tend to distribute taxable capital gains.

When you hold these types of investments in your IRA, you can avoid tax burdens.

Understanding Mutual Funds

Mutual funds are investment programs funded by shareholders. In other words, it pools money from several investors, which is then used to buy securities. When you invest in a mutual fund, you “pool” your money with other people, and you mutually buy certain investments.

Types of Mutual Funds

There are four types of mutual funds you can consider:

  • Money Market Funds: They allow you to invest in short-term investments issued by U.S. corporations and governments.
  • Stock Funds: They allow you to invest in corporate stocks.
  • Bond Funds: They’re similar to money market funds, although they can produce higher returns.
  • Target Date Funds: They hold different kinds of investments aside from stocks and bonds. You may consider them if you have a particular retirement date in mind.

Each of these has different benefits, risks, and rewards. We suggest you consult with a financial advisor to see which option fits your needs the best.

The Role of Mutual Funds in a Roth IRA

Mutual funds allow you to gain exposure to many investment items, which is great if you want to reap the benefits of Roth IRA with portfolio diversification. As long as you choose the right mutual fund to work with, you could get excellent results.

Let’s evaluate the pros and cons of investing in mutual funds for your Roth IRA.

Advantages of Investing in Mutual Funds for Roth IRA

Tax-free Growth

You can use a Roth IRA to contribute after-tax contributions. What this means is that you can ensure tax-free growth for your retirement savings. Your potential gains also grow tax-free, which is excellent news.

Diversification Benefits

Roth IRAs offer many ways to diversify your portfolio. The best method here is to design a portfolio with a long-term, buy-and-hold approach. This allows you to save as much money as possible for the future.

Potential for High Returns

You may get high returns if you’re smart with your Roth IRA. Depending on what you invest in, you could achieve annual returns of up to 10%. The best way to evaluate your options is to talk with financial advisors.

gold ira associated risks

Risks Associated with Mutual Funds in Roth IRA

Market Risk

Roth IRAs aren’t immune to market risks. You must be careful when investing, as you’ll still be exposed to market shifts/downturns. A wrong decision could seriously affect your savings.

Fund Manager Risk

You should work with a fund manager if you want to make the most out of your investment journey. However, you must do research and pick someone who can adapt to your investment goals. Otherwise, you risk losing money due to bad decisions.

Liquidity Risk

Having a Roth IRA won’t ensure you’re not exposed to liquidity risks. Market shifts can drastically change the availability of certain liquid assets.

Roth IRAs don’t provide instant liquidity compared to a regular savings/checking account.

Evaluating Mutual Funds for Roth IRA

There are four key elements you must consider before investing in mutual funds. Here’s an overview of each of them:

Importance of Fund Performance

A mutual fund’s performance is measured by comparing stocks by weight and sector. They’re compared to their corresponding benchmarks or indexes. Of course, there are many factors involved in analyzing a mutual fund’s performance, especially considering that most of these assets follow specific strategies.

You must analyze your mutual fund thoroughly to determine whether it’s a viable investment decision.

Role of Expense Ratio

The “expense ratio” refers to the annual cost of operating and managing a mutual fund. It represents all the expenses and fees that investors pay.

Usually, low-expense ratios are better since they result in lower fees for the investor. The most common expenses associated with an expense ratio include:

  • Fund Manager Fees
  • Legal Fees
  • Marketing/Distribution Fees

Fund Manager’s Track Record

Be careful when choosing your fund manager. You should always check their track record to ensure they’re the right option to manage your investments. Otherwise, you risk making mistakes that will eventually affect your retirement savings.

Fund’s Investment Strategy

As mentioned, most mutual funds involve a specific investment strategy. Also, you must consider your own investment strategy for your Roth IRA.

Usually, a long-term, buy-and-hold portfolio will be great to get started. Of course, things can change depending on how much risk you’re willing to tolerate.

Top Performing Mutual Funds for Roth IRA

You may first struggle to find the right mutual fund for your Roth IRA. By analyzing all the information we just gave you, you’ll have an easier time. There are hundreds of items to choose from, including the Schwab U.S. Dividend Equity ETF (SCHD) and many more.

If you don’t want to waste too much time finding a great mutual fund, don’t worry; here’s a list of the top 10 mutual funds people can get for their Roth IRAs.

stock market etf as one of the best mutual funds for roth ira

Vanguard Total Stock Market ETF (VTI)

VTI tracks the CRSP U.S. Total Market Index’s performance. It works with a passively managed, index-sampling strategy.

What makes this fund unique is that its low expenses minimize net tracking errors, and it also offers small-, mid-, and large-cap equity, which is diversified across many value/growth styles.

Here’s an overview of its price:

  • Expense Ratio: 0.3%
  • Current Price: $238.25
  • NAV: $238.14
  • Inception Date: May 24, 2001

Vanguard Total Bond Market ETF (BND)

It tracks the performance of a “market-weighted bond index.” You can expect it to offer high-income potential and provide diversification to avoid the risk of stocks in your portfolio. Consider this fund if you aim for medium- or long-term goals.

  • Expense Ratio: 0.30%
  • Current Price: $73.90
  • NAV: $73.83
  • Inception Date: April 3, 2007

The Vanguard REIT Index ETF (VNQ)

This product invests in stocks issued by REITs, hotels, and other real property. It aims to track returns from the MSCI US Investable Market Real Estate 25/50 Index. You may see a high potential for income with this one.

  • Expense Ratio: 0.12%
  • Current Price: $88.81
  • NAV: $88.82
  • Inception Date: September 23, 2004

Vanguard 500 Index Fund Admiral Shares (VFIAX)

It offers exposure to 500 of the biggest U.S. companies across several industries. This product is known for its low cost.

  • Expense Ratio: 0.04%
  • Current Price: $441.00
  • NAV: $441.00
  • Inception Date: November 13, 2000

Vanguard Wellesley Income Fund Investor Shares (VWINX)

It’s a 40-year-old fund that offers exposure to investment-grade bonds and stocks.

  • Expense Ratio: 0.23%
  • Current Price: $25.03
  • NAV: $25.03
  • Inception Date: July 1, 1970

Invesco NASDAQ 100 ETF (QQQM)

It includes securities of approximately 100 of the largest domestic/international non-financial companies listed on NASDAQ.

  • Expense Ratio: 0.15%
  • Current Price: $169.35
  • NAV: $169.28
  • Inception Date: October 13, 2020

Invesco Zacks Multi-Asset Income ETF (CVY)

It includes domestic/international companies, which include U.S.-listed common stocks, paying dividends, REITs, and more.

  • Expense Ratio: 1.06%
  • Current Price: $23.94
  • NAV: $23.92
  • Inception Date: September 21, 2006

iShares Core High Dividend ETF (HDV)

It tracks the results of an index that composes high-dividend-paying U.S. equities.

  • Expense Ratio: 0.08%
  • Current Price: $102.14
  • NAV: $102.13
  • Inception Date: March 29, 2011

iShares Cohen & Steers REIT ETF (ICF)

Unlike the previous one, the ICF tracks the performance of an index that composes REITs.

  • Expense Ratio: 0.33%
  • Current Price: $59.02
  • NAV: $59.01
  • Inception Date: January 29, 2001.

Avantis U.S. Small Cap Value ETF (AVUV)

It focuses on U.S. small-cap companies. By design, it aims to increase your expected returns.

  • Expense Ratio: 0.25%
  • Current Price: $91.24
  • NAV: $91.18
  • Inception Date: September 24, 2019

Comparing Mutual Funds and ETFs for Roth IRA

Key Differences Between Mutual Funds and ETFs

Even though ETFs and mutual funds offer similar benefits, there are a few differences you should be aware of:

  • Most ETFs are passive investments, whereas mutual funds are mostly actively managed by fund managers.
  • The price of your ETF may vary from the one other investors got. With mutual funds, on the other hand, all investors get the same price on the same day.
  • ETFs don’t require a minimum investment, whereas mutual funds often ask for a flat fee.
  • ETFs come with implicit/explicit fees. Mutual funds may come without trading commissions, although you may still have to deal with a few operating expenses.
  • ETFs don’t generate as much capital gains as mutual funds, as they have a lower turnover.

Pros and Cons of Investing in Mutual Funds vs ETFs

Pros of Mutual Funds

  • Safety
  • Advanced portfolio management
  • Fair pricing
  • Convenience
  • Dividend potential

Cons of Mutual Funds

  • Potential management abuses from the fund manager
  • High expense ratios
  • Tax inefficiency

Pros of ETFs

  • More diversification
  • Low fees
  • Fast/immediate reinvested dividends
  • Lower premiums
  • Tax efficiency

Cons of ETFs

  • Volatility
  • Intraday peaks
  • Lower dividend yields

How to Choose the Best Mutual Funds for Your Roth IRA

Here’s everything you must consider when choosing the right mutual funds for your Roth IRA:

Factors to Consider When Choosing Mutual Funds

Risk Tolerance

Evaluate how much risk you’re willing to take when investing. A financial advisor can help you go through this process.

Investment Goals

Everyone has unique investment goals. Think about your retirement needs, and work from there.

Time Horizon

Time horizon refers to the period you’re going to hold your investments. You can choose among a short-, medium-, and long-term investment horizon.

The longer the horizon, the more aggressive you can be with your portfolio.


Importance of Diversification in Your Roth IRA Portfolio

Asset Allocation Strategies

You can create methods in executing diversification strategies across different asset classes, including bonds and stocks. Keep in mind that your strategies may (and should) change as you age.

gold ira financial advisor

Here, you have big asset classes, which include bonds, cash, and stocks. Little classes, on the other hand, focus on large-cap stocks, corporate bonds, and more. Seek help from an advisor to get a better idea of what to expect.

Benefits of Diversification

Diversifying allows you to improve your potential returns, stabilize your results, and open the door to more financial opportunities. Of course, you’ll also reduce the risk of losing your money since you’re allocating your funds across different assets and sectors.

Frequently Asked Questions

Do you have more questions about your Roth IRA? Keep reading!

What Are the Best Mutual Funds for a Roth IRA?

The best mutual funds are the ones that best align with your goals. Check the list we provided above to get an idea of what to expect.

Can You Day Trade in a Roth IRA?

Yes, you can conduct day trades with this IRA, although you may expect some limitations.

What Is the Cost to Open a Vanguard Roth IRA?

It costs $0 to open a Roth IRA with Vanguard.

Does Vanguard Offer Roth and Traditional IRAs?

Yes, Vanguard offers both types of IRAs.

What Index Fund Should I Invest in My Roth IRA?

Choose one based on your risk tolerance, investment goals, and the performance of the fund. You can seek help from an advisor.


We hope this guide has helped you understand Roth IRAs and mutual funds, as well as how the accounts differ from a regular taxable account.

In the end, everything depends on what tools you have to work with and what your goals are. If you want to reduce your taxable income in the present, for example, you may want to open a traditional IRA.

Otherwise, if you don’t want to deal with taxes in the future, a Roth IRA may be a great idea.

Arthur Karter


Hi, I’m Arthur, and nobody wants to wake up in their 50s like me that they are in serious debt with minimal assets. This wake-up call forced me to reevaluate everything. After going through the school of Hard Knocks, I’m ready to help you by sharing the best retirement choices and how they differ from all the same-old, same-old options that financial advisors sell. These alternatives will help you build and protect your wealth.

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