I take a somewhat contrarian view on what assets you should hold in an IRA. Conventional wisdom would tell you to put your safer, more conservative investments in their IRA, and avoid putting riskier assets in taxable accounts with the thinking that IRA dollars are more precious and should therefore be treated more carefully.
While I understand this thinking, it’s very bad retirement planning and it can be woefully tax-inefficient.
If you are like a lot of investors, you probably have a decent-sized portion of your assets in index funds or index ETFs — such as the popular SPDR S&P 500 ETF (SPY) — and you augment those baseline index investments with individual stocks or ETFs, some of which you might trade actively. Conventional wisdom would have you put the index funds in your IRA and the more speculative positions in a taxable trading account.
But think about it for a moment. If you’re buying and holding an index fund or ETF for years or decades … it really doesn’t matter where you hold it because other than dividends or the occasional capital gains distribution, you’re not generating any taxable income. It makes all the sense in the world to hold the index funds in your taxable account and reserve your IRA for stocks and funds that are less tax efficient.
With no more ado, here are three popular but tax-inefficient stocks that you should consider for your IRA: