Investors still have some time to make 2023 contributions to IRAs and other retirement accounts before the April 15 deadline. but,
S&P500
After a 10% gain in the first quarter, near all-time highs, investing strategically and incrementally may be beneficial.
For tax year 2023, savers age 50 and older can contribute up to $7,500 to an individual retirement account, and savers under age 50 can contribute $6,500. Traditional IRAs and after-tax Roth IRAs have the same limits, but the amount you can contribute to the latter is based on your income. Note that this limit applies to combined IRAs. You can make multiple contributions at the same time, but the Internal Revenue Service does not allow total contributions beyond that.
Health savings account contribution limits for 2023 are $3,850 for individual coverage and $7,750 for family coverage, with an additional $1,000 allowed for savers age 55 and older. Many account holders leave their HSA funds in cash and use them to pay for medical expenses, but the money can also be invested and used to pay for qualified medical expenses in retirement.
Where you deploy these contributions depends in part on your age. Most established investors probably have a healthy allocation of their funds;
S&P500 index.
But with the market up about 36% since the start of 2023, U.S. large-cap stocks are probably not the best place for older investors to put their new money now.
Younger investors with smaller balances and longer investment horizons do not face the same constraints. When you're just starting out, you don't need to worry too much about diversification within asset classes.
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But once your portfolio reaches $100,000, it's time to consider expanding your business, says Bradley Thompson, a financial expert at Equitable Advisors in Stamford, Conn.
Retirement funds should fill gaps in your portfolio, he says. Investors without small-cap stocks can add exposure, for example, or foreign stocks if their portfolio is purely domestic.of
vanguard small cap
The ETF covers the market with an extremely low expense ratio of 0.05%.of
Vanguard International Stock Total
The ETF tracks emerging and developed international markets with an expense ratio of 0.08%.
Growth stocks have driven the market for the past decade, but some experts say the headwinds for value may be fading. Bill Nygren, manager of the value-oriented Oakmark Fund, said that while the overall market looks expensive, there are still plenty of stocks selling at below-average multiples.
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Although the S&P 500 has a forward P/E ratio of about 20 times, 20% of its constituent stocks sell for more than double that, and 20% trade for about half that price, Nygren said. Investors can build portfolios of companies that earn an average of just 12 times earnings, he said.
of
vanguard value
The ETF tracks the U.S. large-cap value market with an expense ratio of 0.04%. It trades at a price-to-earnings ratio of 18x, a 31% discount to the S&P 500's 26x. It has increased by an average of 10% per year over the past 10 years.
Active managers may do better, including Nygren's Oakmark Fund, which outperformed 98% of its peers over the past 10 and 15 years.
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None of this means that the market is near all-time highs and that investing is easy. One way to reduce the risk of buying near the highest prices is dollar-cost averaging, where you invest the same amount at regular intervals, such as once a month. Within an IRA, this means leaving some of your contributions in a money market fund that earns a 5% yield, and periodically selling chunks to buy selected investments.
Experts say the benefits of dollar-cost averaging may be more psychological than financial. But if you're concerned about investing right before a market pullback, it's a good approach.
Email Elizabeth O'Brien at elizabeth.obrien@barrons.com.
