I presently have a mix of Vanguard funds spread throughout taxable and non-taxable accounts.

Some advisors claim it's better to take risk in the taxable accounts while placing bonds in the IRA. Others have said the exact opposite.

What are some of the pros and cons to investing in more aggressive index funds in a Roth?

  • Please remember to tag your questions with your country when asking about things specific to it (e.g. retirement accounts, taxes, law.) – Chris W. Rea Jun 16 '14 at 23:45

I think you may be drawing the wrong conclusion about why you put what type of investment in a taxable vs. tax-advantaged account. It is not so much about risk, but type of return.

If you're investing both tax-advantaged and taxable accounts, you can benefit by putting more tax-inefficient investments inside your tax-advantaged accounts.

Some aggressive asset types, like real estate, can throw off a lot of taxable income. If your asset allocation calls for investing in real estate, holding it in a 401k or IRA can allow more of your money to remain invested, rather than having to use it to pay for taxes. And if you're holding in a Roth IRA, you get that tax free.

But bonds, a decidedly non-aggressive asset, also throw off a lot of taxable income. You're able to hold them in a tax-advantaged account and not pay taxes on the income until you withdraw it from the account (or tax free in the case of a Roth account.)

An aggressive stock fund that is primarily expected to provide returns via price appreciation would do well in a taxable account because there's likely little tax consequence to you until it is sold.

  • Agree with this answer, and just want to add that this page goes into more detail. – Craig W Jun 16 '14 at 19:58
  • And just to add to that last point, in a taxable (non-IRA) account, if one of your more risky investments loses value and you want to sell it, you can deduct the capital loss (up to $3000/year) from your other gains, dividends, and income. Whereas in an IRA it's very complex and probably not worth it. – public wireless Jul 18 '16 at 22:19

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