Retirement Mutual Funds: Simple Portfolios for Your Retirement Goals
You know you need to save for retirement, and you know that usually means investing. The difficult question is: where to invest your money? There are thousands of retirement mutual funds to choose from.
Of course, if you are investing as part of a workplace pension plan, such as a 401 (k), your choices are limited. Yet if you feel like the opposite of a savvy stock picker, those choices may seem like too many. Here’s the good news: It doesn’t have to be that complicated. You can create an intelligent and diverse environment investment portfolio with just a handful of mutual funds for retirement.
Why you don’t need a lot of mutual funds for retirement
One of the keys to a successful investment is making sure that your investments are diversified. You want your investments to be spread across a large number of companies in different industries and locations. This way, even if one business or industry begins to suffer, others are unlikely to follow suit. What about those occasional times when all stocks seem to be in free fall? This is when the bond part of your wallet supports you.
Mutual funds invest in companies. They are designed so that individual investors can own shares in many companies, often through a single fund. This means that you can have a broadly diversified investment portfolio with just a few retirement mutual funds.
Model portfolios make it easier to select funds
Once you’ve made a commitment to diversifying your retirement through mutual funds, the next question is: which funds are right for you? Some financial experts have created so-called lazy portfolios intended for people who plan to hold their investments for the long term. You can just recreate these wallets in your 401 (k), individual retirement account or other retirement account. You can even spread your lazy portfolio across all of your different accounts, investing in one mutual fund in one account, another fund in another account, and so on.
The beauty of these types of portfolios is that you can create them using similar funds from various mutual fund companies.
A two-fund portfolio
A portfolio made up 60% in an international ETF and 40% in a bond market ETF may earn less than a portfolio invested only in an equity fund, but you would make yourself more vulnerable to the roller coaster plagues you. stomach during a financial crisis. .
The more diversified two-fund portfolio could also drop in the event of a financial crisis, and that’s not much fun either. But you’re less likely to dive for the exit exactly when it’s most important to sit still and wait for market gains to come.
More complex and simpler options
Those looking for even greater diversification might add two asset classes: real estate and Inflation-Protected Treasury Securities, or TIPS.
Suppose you want 60% of your portfolio in stocks and 40% in bonds. You could invest 30% of your portfolio in a total bond market mutual fund and 10% in a TIPS fund. On the equity side, you could put 45% of your portfolio in a global equity fund and 15% in a real estate investment trust fund.
Or, if you want to be super simple, you can invest in just one fund. Typically that would mean a balanced index fund or target date retirement fund, which would not only create a diversified portfolio for you, but also rebalance that portfolio over time.
Watch out for fees
However, when choosing a fund, beware of the fees. One of the most important investment decisions you will make is choosing inexpensive mutual funds.
What does low-cost mean? In general, a mutual fund expense ratio of 1% or more is expensive. Many funds charge less.
After you’ve created your lazy portfolio, sit back, put your feet up, and think about other things besides investing.
Or, if even a lazy portfolio seems like too much work, robo-advisers offer a low-cost path to a balanced and diversified portfolio. Discover our choices for best robo-advisors.
Learn more about mutual funds for retirement and diversification