ETFs are among the many types of investments allowed in a Roth IRA. They offer a combination of diversification, low costs and the flexibility to trade like a stock. Since more actively managed mutual funds will not be able to outperform the market for an extended period of time, paying additional fees for burdens and expense ratios may not be money well spent. Instead, consider passively managed mutual funds or ETFs.
Both may have a place in your portfolio, but because of the ease of buying and selling and possibly the more favorable tax treatment, many IRA investors are finding that ETFs are better suited to their goals and objectives than mutual funds. The best exchange-traded funds (ETFs) for your Roth IRA will include funds designed for long-term investments. ETFs and other investments held in individual retirement accounts (IRAs) increase with deferred taxes, and certain types of funds are ideal for this qualified retirement plan, such as growth and income funds. You can buy an index fund directly from a mutual fund company or brokerage agency.
The same goes for exchange-traded funds (ETFs), which are like mini-mutual funds that trade like stocks throughout the day (more on that below). The best funds to invest in an IRA or 401 (k) are long-term investments, such as stock mutual funds and ETFs.