MW Why Roth IRAs and Roth conversions may not make sense for you
By Philip van Doorn
Also: Small-cap stocks, a bond-market warning, and two metals that might join the amazing rally for gold and silver
It is easy to assume that avoiding taxes is an ideal strategy for managing your retirement account - but it is not ideal for everyone, according to Sean Mullaney and Cody Garrett, the authors of the new book, "Tax Planning To and Through Early Retirement."
Roth IRA conversions are a hot topic, with an aging population and retirees trying to limit their tax burdens.
When you contribute to a traditional individual retirement account, 401(k) or 403(b), those amounts aren't taxed that year, nor are any interest or investment gains. Later on, all withdrawals are taxable as regular income.
A Roth retirement account is funded with aftertax money, which means you will never pay taxes on any earnings, gains or withdrawals from the account.
You can convert some or all of a traditional retirement account into a Roth account to pay taxes at that time and avoid paying them later. But the timing of one or multiple conversions can be complicated if you want to take those actions in the most tax-efficient manner. In the Help Me Retire column, Beth Pinsker has written several articles to help readers decide on the timing of Roth conversions.
It is easy to assume that you will be better off taking the tax hit early during your retirement years. But it turns out that Roth conversions aren't the best choices for most early retirees, according to Sean Mullaney and Cody Garrett, who wrote a book on early-retirement planning and discussed their Roth math with Beth during an interview.
More: IRS rules now say 401(k) catch-ups for high earners have to be in a Roth. Is it still worth it?
Small-cap stocks have been moving ahead - should you jump aboard?
Total returns with dividends reinvested from June 30 through Sept. 25.
The chart above shows small-cap stocks outperforming the S&P 500 SPX since the end of June. The Russell 2000 index RUT is the most commonly cited small-cap benchmark, but it includes hundreds of unprofitable companies. Still, it has recently been outperforming the S&P Small Cap 600 index SML, which is more selective - with four consecutive quarters of profitability among S&P Global's initial requirements for a company to be added to the index.
You can invest in the entire Russell 2000 through exchange-traded funds that track the index, including the iShares Russell 2000 ETF IWO and the Vanguard Russell 2000 ETF VTWO. You can also ride along with the S&P Small Cap 600 with funds such as the SPDR Portfolio S&P Small Cap ETF SPSM.
Let's take a look at long-term total returns for the two small-cap indexes and the S&P 500. All performance figures in this article include reinvested dividends. (You might need to scroll the table to see all of the data.)
Index 3 years 5 years 10 years 20 years 30 years
Russell 2000 50% 75% 146% 383% 1,061%
S&P Small Cap 600 40% 86% 152% 448% 1,602%
S&P 500 87% 116% 308% 701% 1,869%
Source: FactSet
The Russell 2000 has outperformed the S&P Small Cap 600 over the past three years, but the higher-quality small-cap index has won out for all of the longer periods, with the differences especially significant for the 20- and 30-year periods.
Here are average annual returns for the same periods:
Index 3-year avg. return 5-year avg. return 10-year avg. return 20-year avg. return 30-year avg. return
Russell 2000 14.5% 11.8% 9.4% 8.2% 8.5%
S&P Small Cap 600 11.8% 13.2% 9.7% 8.9% 9.9%
S&P 500 23.2% 16.6% 15.1% 11.0% 10.4%
Source: FactSet
The large-cap socks have been the clear winners, as a group, for all periods. But adding exposure to small-cap indexes can help you diversify your portfolio and cut risk. The indexes are all weighted by market capitalization, which means the S&P 500 by definition is more concentrated than the others. The three largest holdings of the SPDR S&P 500 ETF Trust SPY - Nvidia Corp. (NVDA), Apple Inc. $(AAPL)$ and Microsoft Corp. $(MSFT)$ - make up 21.2% of the portfolio.
What if you want to select individual small-cap stocks? Mark Hulbert suggested that investors be "choosy" with small caps and shared a strategy used by AQR Capital Management for identifying higher-quality stocks. He then used that methodology to list a dozen quality small-cap stocks.
More from Hulbert: Why Apple and other slow AI adopters may be right to wait and see
Another screen: These 15 stocks have beaten the S&P 500 this year - while getting cheaper in the process
More on stock-market concentration
Joseph Adinolfi explained how having a diversified portfolio has traditionally been considered to be "the only free lunch" for investors. But in light of the artificial-intelligence buildout, some money managers are temped to adopt a different strategy.
Another look at the broad market: Here is one overlooked reason why U.S. stocks have been steadily climbing over the past 15 years
A bond-market warning
The weighted yield to maturity for the ICE BofA Mortgage Backed Securities index was 4.77% on Sept. 26, down from a 2025 peak of 5.52% in January.
When bond prices rise, their yields fall, and vice versa. Strong demand for bonds and a concurrent decline in yields indicate professional investors believe loan interest rates will come down within the next year.
But maybe home buyers (and investors banking on a further increase in bond prices) shouldn't expect mortgage rates to decline much further. Joy Wiltermuth explained why this year's "euphoria" in the bond market might be misplaced.
Related: Home sales stall, even as housing market becomes buyer-friendly
These metals can join the gold and silver party
Front-month contracts for gold (GC00) were trading for $3,809.40 on the New York Mercantile Exchange at noon on Friday, up 44% from $2,641 at the end of 2024. But a three-year chart provides more perspective:
Front-month contract prices for gold on the New York Mercantile Exchange have increased 133% over the past three years.
Barbara Kollmeyer explained why these two metals might join the rally for gold and silver.
The Moneyist helps clean up a financial mess
Quentin Fottrell helps MarketWatch readers facing myriad financial difficulties.
Have you or someone you care about neglected to file income-tax returns for several years? Take heart - it might not be especially difficult to rebuild your relationship with the Internal Revenue Service, as Quentin Fottrell - the Moneyist - explained to a MarketWatch reader.
More from the Moneyist:
-- 'I'm afraid they'll end up destitute and homeless': My daughter has a dishonest spouse. How can I help?
-- I'm 66. My mortgage is $250K and the rate is 3.4%. Would it be foolish to pay it off from my $770K investments?
-- I inherited $600,000 in Apple shares from my mother. Am I crazy if I don't sell them now?
How about another deal for Intel?
Intel Corp. $(INTC)$ has been on a roll, with recent investments by Nvidia and the federal government. Now the company is negotiating with Apple for another investment, according to a Bloomberg report. Britney Nguyen discussed Intel's long-term prospects as a semiconductor fabricator with three money managers. Intel's stock was up 5% in midday trading on Friday. Through Thursday, the stock was up 69.5% for 2025.
A different opinion: Should Apple buy Intel's stock? These analysts suggest a better investment.
Read on: These chip stocks are rising off Trump's latest proposal to boost U.S. manufacturing
An Amazon bargain
Amazon Web Services is one of the three main competitors in cloud computing for other companies, going head-to-head with Microsoft and Alphabet. AWS contributed 18% of Amazon's combined second-quarter sales, but 53% of Amazon's operating income.
Christin Ji explained why shares of Amazon.com Inc. (AMZN) appear to be cheaply priced right now, while Charles Passy delved into Amazon's growing B2B business.
More coverage from MarketWatch's technology team:
-- Why Oracle's 'jumbo' AI-fueled bond deal is so unusual
-- Inside the zero-revenue nuclear stock whose 1,500% rally is shaking up the AI trade
-- Nvidia's OpenAI deal adds to a brewing concern. But will that actually hurt the stock?
Want more from MarketWatch? Sign up for this and other newsletters to get the latest news and advice on personal finance and investing.
-Philip van Doorn
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
September 26, 2025 13:37 ET (17:37 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.