Today we shall look at some simple portfolios for retirement, in a bid to help you pick up ideas on how you should go about building your wealth. The examples I will present here will be based on Mutual Funds, but that does not mean that you cannot extend the knowledge you acquire to invest in other assets including precious metals and cryptocurrencies.
You need to know how to put aside some money to guarantee financial security during your retirement years, and that comes with establishing how to also invest your contributions. The tough question that you’ll, however, have to answer is “Where do I invest my money?” The good news is that there are very many mutual funds that you can choose from today, though this also means that you have to be very careful when picking your preferred funds to avoid losing your money over time.
If you are using a workplace retirement plan to save for your retirement, your investment asset choices may be quite limited. Your 401(k) plan may, for instance, only allow you to pick from a handful of stocks or funds, and limit you from adding non-traditional assets such as real estate projects, promissory notes, and precious metals.
Regardless of the type of plan, you are relying on as your retirement investment vehicle, building your wealth does not have to be hard. You can come up with your unique smart and diversified portfolio with several mutual funds.
Do you need a lot of mutual funds in your retirement investment plan?
One of the very basic pillars of successful investing is to ensure that your u portfolio is properly diversified. The goal is to have your retirements spread out across several companies that operate in different industries and geographical locations. Doing this ensures that even if one of the companies starts to perform poorly, the rest of your portfolio is not put at risk. You, however, also need to be ready for occasions in which all stocks seem to be in free fall, by having a portion of your money placed in non-traditional assets.
Mutual funds invest in different companies and are structured in such a way that they enable investors to own shares in several different companies, often through single funds. This implies that you can create a broadly diversified investment retirement portfolio by picking a handful of mutual funds.
Model portfolios – Simplifying the selection of mutual funds
Upon committing to diversifying your mutual funds for retirement, then you should proceed to establish which funds are best suited to help you achieve your retirement investment goals. One of the options you can go with is a lazy portfolio, which is aimed at helping those who plan to want to hold their investments for a long-term horizon to gradually earn investment income.
You can create such portfolios using any type of retirement investment plan, or even spread the lazy portfolios across several retirement investment plans (e.g. across a Roth IRA, 401(k), or self-directed IRAs). This can mean investing single mutual funds in certain accounts, and other funds in other accounts, etc. The good thing about such portfolios is that you can create them using similar funds offered by various mutual fund companies.
Two fund portfolios
Portfolios that are comprised of about 70% international ETFs and 30% bond market ETFs have a lower investment income potential than portfolios that are solely comprised of stock funds. Investing in a stock fund would however leave you in a terrible position in the event a financial crisis occurred.
This does not mean the two-fund portfolios are immune to drops during a financial crisis, but they are less likely to damage cause damage to your overall retirement investment account balance. If anything, if you sight tight, and hold on during a financial crisis, you can a lot of income from the overall market gains as the market starts performing better.
Other complex and simple options
If you are looking to diversify your retirement investments, even more, you can add other asset classes such as Treasury Inflation-Protected Securities ( TIPS).
You could also opt to have 70% of your overall portfolio in stocks and 30% in bonds. You could then proceed to have the bond funds divided in the following manner:
- 20% in a total bond market mutual fund.
- 10% in a TIPS fund.
For the stock fund part of the portfolio, you can allocate your funds as follows:
- 50% of the portfolio in a global stock fund
- 20% in REITs
You can also choose to simplify the investment process by picking one fund. This would, however, imply choosing a balanced index fund to help you create a diversified portfolio or a target-date retirement fund that would present you with an opportunity to rebalance your portfolio over time.
Do not forget about the fees
When picking any fund, you should be mindful of the fees. The key decision you will have to make during the selection of funds is choosing those that are not expensive. Low-cost funds are those that have expense ratios of less than 1%. Any fund that has a higher expense ratio is considered expensive.
After creating your lazy portfolio, you can relax and not think of anything else pertaining to your retirement investment. If you still have a hard time creating a lazy portfolio, you can choose a suitable robo-advisor to help you create a low-cost balanced portfolio.
Alternatively, you can consider opening a self-directed IRA that allows you to invest in gold and silver, more so now that the inflation rates are diminishing the income-generating potential of paper asset-based retirement accounts.
That will be all for this article on simple portfolios for retirement. Hopefully, you have gained some tips to help you create a well-balanced portfolio as you plan your retirement years. The tips I have presented here are not the blueprint for successful investing (you may need a financial advisor to get it right), but they can help you establish a simple path to investing for your retirement years. Let me know if you have more questions with regards to today’s topic, or how you can open your self-directed IRA.
I wish you well,
Eric, Investor and Team Member at Gold Retired.