Ally Roth IRA Investment Choices

Starting your Ally Roth IRA investment journey with VTI and BKAG is a smart move.

Ally Financial Inc. (ALLY) is a leading digital financial services firm and comprehensive automotive finance provider. Their offerings include mortgage and personal loans, consumer credit cards, savings and checking accounts, certificates of deposit (CDs), as well as brokerage and investment advisory services.

Through Ally Bank, the company serves approximately 3 million deposit customers. Ally Invest supports around 529,000 brokerage accounts with assets totaling $16.6 billion as of June 30, 2024.

Originally founded in 1919 as GMAC, a General Motors division focused on automotive dealer financing, Ally has since evolved to provide a wide range of financial services.

Ally offers investors access to hundreds of exchange-traded funds (ETFs) from prominent providers such as Vanguard, iShares, and WisdomTree, though it does not have its own proprietary fund family.

The platform also features a robo-advisory service that delivers automated, algorithm-driven financial planning with minimal human intervention.

In the U.S., investors can choose from various tax-advantaged retirement accounts, including 401(k)s, traditional IRAs, and Roth IRAs. The key distinction of a Roth IRA is that contributions are made with after-tax dollars, enabling tax-free withdrawals in retirement, unlike traditional IRAs where withdrawals are taxed.

Key Highlights

• Ally, established in 1919 as GMAC, now offers a broad selection of ETFs without its own proprietary funds.
• A combination of a broad stock fund and a broad bond fund provides a solid foundation for retirement investing.
• Roth IRAs allow tax-free growth and withdrawals by investing post-tax income today.
• VTI and BKAG are excellent starting points for Ally Roth IRA investors.

Vanguard Total Stock Market ETF (VTI)

• Expense Ratio: 0.03% (as of Aug 25, 2024)
• Assets Under Management: $1.7 trillion (as of Aug 25, 2024)
• One-Year Total Return: 28.05% (as of Aug 25, 2024)
• 12-Month Yield: 1.34% (as of Aug 25, 2024)
• Inception Date: May 24, 2001

VTI tracks the CRSP U.S. Total Market Index, encompassing thousands of stocks across the entire U.S. equity market spectrum. This broad and diversified ETF represents nearly 100% of the investable U.S. stock market.

As of August 25, 2024, VTI holds 3,673 stocks: 67.7% large-cap, 13.9% mid-cap, 8.2% small-cap, with the remainder spread between small-mid and mid-large caps. The average market capitalization is approximately $837.8 billion.

VTI is an ideal choice for an Ally Roth IRA foundation due to its low cost and comprehensive market exposure, making it suitable for long-term retirement portfolios.

Comparable ETFs

Alternatives at similar price points include Schwab U.S. Broad Market ETF (SCHB) and iShares Core S&P Total U.S. Stock Market ETF (ITOT), though VTI offers the broadest stock exposure.

Investors may also consider large-cap focused ETFs like iShares Core S&P 500 ETF (IVV), supplemented with small or mid-cap funds for diversification.

Schwab U.S. Large-Cap ETF (SCHX) provides broader coverage than the S&P 500, while BNY Mellon U.S. Large Cap Core Equity ETF (BKLC) offers a low-cost large-cap option with fewer holdings.

While broad equity funds like VTI carry market risk, they present strong growth potential and can serve as the core of a diversified portfolio. Investors with low risk tolerance or nearing retirement might prefer more income-focused investments.

BNY Mellon Core Bond ETF (BKAG)

• Expense Ratio: 0.00%
• Assets Under Management: $1.84 billion (as of Aug 25, 2024)
• One-Year Total Return: 8.58% (as of Aug 25, 2024)
• 12-Month Yield: 3.75% (as of Aug 25, 2024)
• Inception Date: April 22, 2020

BKAG tracks the Bloomberg Barclays U.S. Aggregate Total Return Index, representing the U.S. investment-grade, fixed-rate taxable bond market.

With a 0% expense ratio, BKAG provides cost-effective broad exposure to the U.S. bond market.

As of August 25, 2024, BKAG holds 4,734 bonds, with 43.24% in Treasuries, 25.41% in agency fixed-rate bonds, and the remainder spread across sectors like banking, consumer non-cyclical, communications, technology, energy, utilities, consumer cyclical, and capital goods.

Important Considerations

Expense ratios directly impact returns; lower fees are always preferable.

Bond funds typically carry lower risk than equities but offer lower growth potential, making them attractive for risk-averse investors and portfolio diversification.

Modern portfolio theory suggests combining broad equity and bond funds to balance risk and maximize returns.

While the traditional 60/40 stock-to-bond allocation remains popular, investors may adjust ratios based on risk tolerance and retirement timeline.

Younger investors might favor stock-heavy portfolios, whereas those nearing retirement often increase bond allocations.

Funding Your Ally Roth IRA

You can fund an Ally Roth IRA via ACH transfers, wire payments, checks, or by transferring cash from existing Ally Invest individual or joint accounts.

Ally Roth IRA Fees

Ally charges no annual maintenance fees for IRAs. However, a $25 termination fee and $50 transfer fee apply when moving funds out partially or fully.

IRA Types Offered by Ally

Ally provides traditional IRAs, Roth IRAs, rollover IRAs, and Coverdell Education Savings Accounts.

Conclusion

Roth IRAs offer unique tax benefits by allowing tax-free growth and withdrawals since contributions are made with after-tax dollars. Choosing investments depends on individual risk tolerance and available time for research.

For those with limited time, allocating funds between broad stock ETFs like VTI and broad bond ETFs like BKAG creates a strong, diversified retirement portfolio foundation. This strategy suits many investors, while others may explore additional niche or individual stock options for enhanced growth or risk management.

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