Investment Insights on IRAs

Welcome to investment insights. I’m your host, Evanna Hampton. Instead of waiting for the next year to roll around, why not think about getting your IRA in order this summer? A mid-year check can really help you improve your retirement savings and take advantage of tax benefits earlier. Morningstar’s fund investors newsletter suggests some straightforward investment ideas for those wanting to keep investing simple, maximize tax advantages, or aim for capital growth. Today, we have Morningstar’s Senior Principal Ratings, Russ Kinnell, sharing his top fund picks for IRAs.

Nice to meet you, Russ.

It’s great to be here.

Let’s start with some basics about IRAs. What exactly is an IRA? And how much can someone contribute in 2026?

An IRA allows you to invest money while deferring taxes for a long time. You can contribute $7,500 annually if you’re under 50 and $8,600 if you’re over 50, and you can make those contributions anytime during the year.

What’s your personal strategy for your IRA?

I’m using a Roth IRA. I have just one fund, Vanguard Capital Opportunity VHCAX, and I let it grow over time.

Simple enough.

Absolutely.

We’ve categorized our favorite IRA ideas into three main buckets. Target-date funds really simplify things. How does Vanguard Target Retirement 2030 VTHRX ease that process?

Vanguard’s target-date funds are excellent because they consist of a few index funds that don’t change much, plus they have a glide path. This means they gradually adjust as you approach retirement, subtly increasing bond exposure and lowering equity exposure over time— all at a low cost. They’re easy to grasp and cover a broad range.

Balanced funds are another straightforward option. How does the T. Rowe Price Balanced Fund RPBAX help investors manage portfolio risk?

This fund combines equities with fixed income strategies, utilizing several solid T. Rowe funds. If you’re a fan of T. Rowe, this is an easy way to achieve quick diversification.

The T. Rowe Price Fund is US-centric. Is the Vanguard Total World Stock Index VTWAX a good pick for those looking for global exposure?

Definitely. A lot of US investors are perhaps too heavily weighted in domestic stocks, so adding some foreign exposure could be beneficial. The Vanguard Total World Stock fund is a highly diversified global index covering all large companies with very low costs.

What about maximizing tax benefits? Which strategy would be better and how can these funds be used during retirement withdrawals?

There are income-generating funds like high-yield and bank loan funds that can be advantageous in an IRA since you won’t owe taxes on that income until you withdraw it. For retirees, that income can provide a solid source of funds. It’s quite effective.

Two high-yield funds are on your favorites list. What can you share about Fidelity Capital & Income FAGIX?

Fidelity Capital & Income is an aggressive fund featuring high-yield bonds, stocks, and sometimes cash, and it tactically shifts between these. It has performed quite well across long-term periods, albeit with considerable risk because of higher equity exposure.

What makes PGIM High Yield PBHAX stand out?

This fund is more traditional and focuses purely on high yield, backed by a strong team of analysts and managers for consistent high-yield exposure.

So, you might also refer to it as “P-GEM” instead of PGIM?

You could say that.

Pimco Income Ponax falls under the Morningstar Multisector Fixed Income category. What’s the approach Dan Ivascyn and his team are using?

They provide a diverse mix, including various mortgages and some emerging markets, corporate debt, and foreign currencies. Dan Ivascyn does a stellar job of keeping this well-focused on income generation.

The last two funds for capital appreciation highlight both value and growth. Why do we lean towards Dodge & Cox Global Stock DODWX?

Dodge & Cox has low overhead and a strong reputation for attracting talent. Their values lead to steady returns in value sectors, offering a solid long-term strategy even if growth sectors like technology may yield less.

For growth, why consider Vanguard Primecap VPMAX?

This is operated by the same team behind Vanguard Capital Opportunity. They’re excellent long-term growth investors with a focus on healthcare, particularly relevant now given the rise of AI. This might mean less initial upside from AI, but it also reduces potential downside risks.

Could any of the funds we’ve talked about work for a Roth IRA, too?

Absolutely. Contributions to a Roth IRA use after-tax dollars, meaning you won’t owe taxes when withdrawing funds in retirement. Unlike traditional IRAs, with Roths, the tax benefits are on the back end.

So, what’s the overall takeaway for investors checking on their IRA mid-year and thinking about these funds?

Investing in an IRA is possible anytime, not just during the tax season deadline. It’s beneficial to diversify across various tax-type accounts in your overall strategy, so if you hold taxable investments, consider including some tax-deferred accounts as well.

Thanks for sharing your insights on IRAs, Russ.

You’re welcome.

This wraps up this week’s episode. Thank you for making investment insights part of your day!