Analysts, Times Staffers Discuss IRA Selections

What to choose for your IRA investment? Whether to fund an IRA at all?

Here’s how Times personal finance and markets team staffers and some analysts at fund-tracker Morningstar Inc. in Chicago answered the IRA question this year:

I don’t always practice what I preach.

My $2,000 contribution to my Roth IRA for 1999 had been languishing in cash, even though I recently wrote a column on how important it is to get your retirement money into the market as soon as possible, the better to grow your nest egg over time. I justified my inaction by rationalizing that the cash was an important part of my asset allocation, balancing out my riskier investments.

But a Roth is a bad place for cash, and I knew it. Much better to keep your cash and bond allocation in your 401(k) and put your high-growth investments in a Roth. That ideally means more tax-free money in retirement, since Roth withdrawals aren’t taxed.

Last week’s technology stock rout gave me the excuse I needed to get going. My overall portfolio was way too light in technology stocks--Morningstar’s portfolio X-ray feature showed I had less than the Standard & Poor’s 500 index weighting of 33% in technology. So I moved my 1999 Roth contribution into T. Rowe Price Science and Technology fund, and I’m beefing up technology holdings in my other retirement accounts.

My 2000 Roth contributions--that $166 a month I have automatically whisked from my checking account to my brokerage account each month--will go into tech as well.

--Liz Pulliam Weston, Times personal finance columnist

I’m using a Roth IRA. I’ll be investing in Vanguard Health Care fund. I like the long-term prospects of the sector. And because I’ll be dollar-cost averaging, the volatility of a sector fund could be to my advantage.

--Peter Di Teresa, senior editorial analyst, Morningstar.com

My husband and I funded Roth IRAs this year. Because these accounts are a relatively small piece of our retirement pie, we decided to have a little fun with the money. I bought Spain Fund, Qwest and Tellabs. I bought Spain Fund because I like the manager, the fund was trading at a discount to net asset value (what’s new?) and I feel like I’m getting exposure to both Spain and Latin America.

As for Tellabs [a telecom equipment maker], we’ve fallen in love with this stock; we’ve owned it in a taxable account for at least five years. We wanted to buy it in a nontaxable account, so we could trade it.

--Bridget Hughes, Morningstar analyst

Because my 401(k) savings plan doesn’t offer a corporate junk-bond mutual fund, I will be funding an IRA using the Fidelity Capital and Income fund, to which I’ve made many previous IRA contributions. I don’t want to own bonds for current income, but I like junk as an asset class long term, so investing via an IRA makes sense.

--Tom Petruno, Times senior markets editor

I bought the Janus Mercury fund for a traditional IRA because it holds the stocks I would buy if I had lots of money and could trade in size. I also appreciate its “modern” approach to stock picking, that is, recognizing that periods of supernormal growth can produce spectacular gains and not shying away because a stock’s price-to-earnings ratio may be huge.

--Kathleen Brady, news assistant, Times markets staff

I don’t do IRAs.

Funding an IRA would make it harder to continue investing every month in my 401(k), and in about a half-dozen taxable--but flexible--stock dividend reinvestment plans. The purpose of buying all those DRIPs is the possibility of early retirement, and although it’s a long shot, it’s a shot you don’t really get with an IRA, with its penalties for early withdrawal.

If you already have, say, a 401(k), a defined-benefit pension, an employee stock ownership plan and Social Security to look forward to, do you really need another retirement-income source?

--Josh Friedman, Times deputy markets editor