How many funds in roth ira

Of course. While domestic and international stocks generally trend upwards, from time to time stocks fall in value.

Owning some bonds along with stocks can be a great way to calm your investing nerves during inevitable dips and bear markets. When stocks are falling, quality bonds typically hold their ground—and may even rise in value. In short, you can get the growth of stocks and the calming protection of bonds with a three-fund approach. A three-fund approach is a bit of a Goldilocks solution.

It gives you most of the diversification of an all-in-one solution, like a target date fund , where all of the investments are chosen for you. But it also grants you more control over the investments you put your money in, which helps you craft an asset allocation that reflects your personal desired level of risk. On the flip side, you also need to think through if it continues to be a good fit once you hit your 50s, says Beau Henderson, founder of RichLife Advisors in Gainesville, Ga.

If you go the three-fund route, you need to stay on top of your overall portfolio and handle rebalancing to make sure your portfolio retains the right mix of stock and bond funds as the market waxes and wanes. And while a three-fund portfolio offers solid asset allocation, you may be missing out on a few other asset classes that can deliver another layer of diversification, such as real estate or gold, or adding some diversification to your bond holdings by owning a mutual fund that invests in Treasury Inflation-Protected Securities TIPS.

Still, a three-fund portfolio is a retirement-savings example of how not to let the pursuit of the perfect be the enemy of the good. Trying to build and watch over a portfolio with lots of moving pieces can be a chore.

The three-fund approach gives you plenty of diversification and more control than a one-fund approach. The first step is to decide how much overall you want to invest in stocks and how much in bonds. The younger you are, the more you typically want to rely on stocks for long-term retirement savings. Chances are your workplace plan or the brokerage where you have your IRA has a free online tool to help you hash out the right asset allocation mix. For the stock portion of your portfolio, you will need to make one more asset allocation choice: how much to invest in U.

With a three-fund approach, focus on index funds that take a broad-market approach. Most mutual funds and ETFs charge an annual fee called an expense ratio. You can get back to your desired asset allocation by selling shares of the fund that has grown too big and reinvesting shares in the fund s that are lighter than your target. Note: When you exchange shares within a retirement account— k or IRA —there is no tax due on your gains.

If all that three-fund work caused your eyes to start glazing over, one fund, such as a target date fund, may be the right choice. That can also work for older investors who are confident that they can cover their retirement living expenses from guaranteed income sources such as Social Security and a pension and prefer to keep their retirement portfolio focused on long-term growth.

I specialize in explaining the how and why of retirement planning so consumers can make confident choices and get on with their lives. My work has appeared in Money magazine, Consumer Reports, Bloomberg. There are no required minimum distributions RMDs for as long as you live. You can put money in your account for as many years as you want, as long as you have earned income that qualifies. It doesn't matter if you're covered by an employer's retirement plan, such as a k or b. Contributions may be limited by how much you earn—your modified adjusted gross income MAGI must be less than the annual limit set by the IRS.

To use this strategy, you'd start by placing your contribution in a traditional IRA—which has no income limits. But make sure you understand the tax consequences before using this strategy because a Roth conversion is permanent—the contribution can't be moved back to a traditional IRA. The younger you are when you open your IRA, the greater your saving potential because you get that tax-free compounding clock ticking longer and harder for you. An amount used to determine a taxpayer's IRA eligibility.

If you're up to it, you can do a little legwork on your own by going to a tool like Morningstar's Portfolio Manager. After plugging the names or ticker symbols of your funds, you'll be able to see how your portfolio looks overall, how your savings are broken down by different asset classes, what you're paying in underlying expenses and where holdings of these many funds may overlap.

If nothing else, going through this exercise will show you whether your portfolio is truly diversified and jibes with your risk tolerance. Related: 5 questions to ask a financial adviser before hiring one. Next, I suggest you go to your adviser, express your concerns and ask him to demonstrate why you need so many funds. The keyword here is "demonstrate. I'd be surprised if your adviser couldn't provide a quick justification for each fund choice.

But I'd want more. I'd want an analysis that quantifies the benefit of having so many funds. How much, specifically, does it boost returns after all fees are paid , reduce risk or both? I'd also want to see whether I could get similar performance with a much more streamlined portfolio of low-cost index funds or ETFs. You've got enough money at stake here so that you should consider getting a second opinion. There's no shortage of qualified advisers out there, so why not contact a few to see what they'd recommend, and what they'd charge?

Fact is, the number of high-quality low-cost options for portfolio management is growing quickly these days. I don't see how it would hurt to explore them.