I’m 52 and retiring in 20 years. Should I invest in a Roth IRA or individual index funds like the Dow and Nasdaq? 

Dear MarketWatch, 

I spent five years as a teacher in Missouri, which made me eligible for a tiny pension (under $400 per month).

Teaching didn’t work out for me, and since I will never be able to return to the profession and increase my pension, I decided to cash in my pension and reallocate the funds to something that would pay more. 

I paid down some debt and then invested $6,500 — the maximum allowable amount — into a Roth IRA. I’m 52 but don’t plan to retire for at least another 20 years. 

Once I’m done with my taxes, I am not certain whether I should put the remaining funds in the IRA or invest them in index funds like the Dow or Nasdaq. What is your advice?

Related: I’m 73, retired and take my RMDs. But what happens if I become incapacitated and miss them for several years?

Dear Reader, 

I’m going to answer your question with a question. Why choose one over the other when you can have both? Index funds are a popular choice for investors with IRAs, so there’s no reason why you couldn’t add them to your Roth IRA’s portfolio. 

For those who may be unaware, and as the name suggests, index funds use indexes, such as the S&P 500
Dow Jones Industrial Average
Nasdaq Composite,

or many others, as benchmarks. They’re particularly useful for long-term investing, which makes them a good choice when your retirement is a couple of decades away.

When you have your retirement investing plans on the radar, but aren’t sure where to start, look at target-date funds. Managers link these portfolio funds to specific years for retirement — say, 2030 or 2055. If your retirement is 20 years away, you could look at a target-date fund for 2045. (Keep an eye on fees, also called expense ratios.)

I am not a financial planner — specifically, not your financial planner — so I do not provide specific investment advice. Any funds I mention here are simply to illustrate and explain how they work and what to look for. 

Target-date funds

Back to the target-date fund. If you look at Vanguard Target Retirement Fund 2045, VTIVX you will see under “holdings” that half of that fund is invested in Vanguard’s Total Stock Market Index Fund VSMPX, another 33% is in Vanguard’s Total International Stock Index Fund VGTSX, 10% is in the company’s bond-market index fund VTBIX, 4% is in Vanguard’s international bond index fund VTILX, and 1% is in liquidity. Take it a step further, using the total stock-market index fund as an example, you’ll see the top 10 holdings include Apple,




Vanguard is far from the only company that offers target-date funds or index funds. Other big names include Fidelity, Blackrock
T. Rowe Price

and American Funds . You can make a day of searching their options and comparing holdings. 

Another option you have is to invest in a traditional IRA right now if you’re in a higher tax bracket than you expect to be in the future (though not including assumptions about tax brackets when they sunset in 2025). As your tax liabilities drop, you can convert some of those funds into your Roth account. Having a Roth IRA is a great tool for retirement savings, and diversifying your investments and your taxability will make any option you have in the future even more powerful.

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

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