How to Build an Investment Portfolio for Retirement (2024)

To live out your retirement in comfort, carefully managing your investment portfolio over time will be key. Your investment portfolio, the sum total of all your investments across various accounts, grows throughout your working years so that it can provide you with the income you need to maintain your lifestyle during retirement.

As your risk tolerance and time horizon change throughout your lifetime, your investment portfolio and strategy probably will also need to change. Read on to learn how to build and maintain a sustainable investment portfolio that fits your financial needs and investment style.

Key Takeaways

  • When saving for retirement, take advantage of the power of compounding by starting to save and invest as early in life as you can.
  • Try to rebalance your investment portfolio as you age and your investment goals, risk tolerance, and time horizon naturally change.
  • Experts suggest focusing on growth investments as a young investor and then shifting gears towards income and capital preservation as you near retirement.
  • Regardless of age, portfolio diversification can help you maintain more stable and reliable investment returns.
  • When deciding between active and passive portfolio management, know that active management tends to result in higher investment returns but also higher transaction fees compared to passive management.

What Is an Investment Portfolio?

An investment portfolio encompasses all the investments you have in various accounts, including:

  • Employer-sponsored plans like 401(k)s
  • IRAs (traditional, Roth, SEP, SIMPLE)
  • Taxable brokerage accounts
  • Robo-advisor accounts
  • Cash in savings, money market accounts, or certificates of deposit (CDs)

Those accounts can hold different types of assets, including (but not limited to) stocks, bonds, exchange-traded funds (ETFs), mutual funds, commodities, futures, options, and even real estate. Together, these assets form your investment portfolio.

If you're investing for retirement, an ideal portfolio would be one that is designed to meet your financial needs for the rest of your life once you retire from the workforce.

That requires that you begin saving your money and buying investments as early in life as possible so that your returns can compound over a long period and boost your portfolio's value. By giving your money its greatest opportunity to compound, it truly works for you through the years.

An ideal retirement portfolio also calls for a focus on a large percentage of growth investments in your earlier years. Equities, growth stocks in particular, are such an investment.

Growth Stocks

Retirement plans are designed to help investors increase the value of their investments over long periods of time. Growth instruments such as stocks and real estate typically form the nucleus of most successful retirement portfolios during the growth phase.

It is vitally important to have at least a portion of your retirement savings grow faster than the rate of inflation, which is the rate at which prices rise over time. Investments that grow more than the inflation rate can counteract the erosion of purchasing power that results from inflation.

Stocks have posted the best returns over time by far of any asset class. From 1926 to 2022, large-cap stocks averaged 10.1% growth per year. Small-cap stocks averaged 11.8%. Government bonds averaged only 5.2%, and cash posted 3.2% growth.

For this reason, even retirement portfolios that are largely geared toward capital preservation and income generation often maintain a small percentage of equity holdings to provide some growth potential and a hedge against inflation.


The average annual compounded return of large-cap stocks from 1926 to 2022.

Portfolio Diversification

Diversification refers to incorporating distinct asset types and investment vehicles to limit the effects of risk and negative performance of any one asset. Diversification will take a different form over time. When you're in your 20s, you may decide to diversify your portfolio among different types of equities, such as large-, mid-, and small-cap stocks and funds, and perhaps real estate.

Once you reach your 40s and 50s, however, you may want to move some of your holdings into more conservative sectors. These include corporate bonds, preferred stock offerings, and other moderate (less aggressive) instruments that can still generate competitive returns—but with less risk than pure equities.

Alternative investments, such as precious metals, derivatives, oil and gas leases, and other non-correlative assets, can also reduce the overall volatility of your portfolio. They can also help generate better returns during periods when traditional asset classes are idle.

An ideal retirement portfolio should not be weighted too heavily in shares of company stock. A big drop in its value could drastically alter your retirement plans if it constitutes a large percentage of your retirement savings.

Risk Tolerance

Risk tolerance refers to the amount ofvolatilityin the value of their investments that an investor is willing to endure. As you approach retirement age, your risk tolerance often changes, and you may need to focus less on growth (equities) and more on capital preservation and income (fixed income securities).

Instruments such as certificates of deposit (CDs), Treasury securities, and fixed and indexed annuities may be appropriate if you need a guarantee of principal or income.

Generally, however, your portfolio should not become exclusively invested in guaranteed instruments until you reach your 80s or 90s. An ideal retirement portfolio will take into account your drawdown risk, which measures how long it will take you to recover from a large loss in your portfolio.

Active vs. Passive Management

Investors today have more choices than ever when it comes to how to manage their money. One of these choices is active vs. passive portfolio management. Many financial planners exclusively recommend portfolios of index funds that are passively managed.

Others recommend actively managed portfolios that may post returns that are superior to those of the broader markets. However, actively managed funds typically charge higher fees, including transaction fees. That's important to consider since those fees can erode your investment returns over the years.

Another option is a robo-advisor, which is a digital platform that allocates and manages a portfolio according to preset algorithms triggered by market activity. Robo-advisors typically cost far less than human managers. Still, their inability to deviate from their programs may be a disadvantage in some cases. And the trading patterns they use can be less sophisticated than those employed by their human counterparts.

Robo-advisors may not be the best choice if you need advanced services such as estate planning, complicated tax management, trust fund administration, or retirement planning.

Frequently Asked Questions (FAQs)

What Is a Good Investment Portfolio for Retirement?

That depends on your age and how close you are to leaving the workforce. When just starting out, aim for an aggressive investment stance that's heavy on equities, which historically have outperformed fixed income investments. You have time to recover from drops in the market and declines in your portfolio's value. You can adopt a more conservative investment stance as your risk tolerance changes (e.g., as you near retirement). Remember that you should always include some growth component in your portfolio to protect against inflation and so that you don't outlive your savings.

What Should My Portfolio Look Like at 55?

First, evaluate your tolerance for risk at that age and decide how focused on growth you still need to be. Some financial advisors recommend a mix of 60% stocks, 35% fixed income, and 5% cash when an investor is in their 60s. So, at age 55, and if you're still working and investing, you might consider that allocation or something with even more growth potential.

What Is the Best Advice for Someone Planning for Retirement?

Perhaps the best advice for someone planning for retirement is to start saving and investing as early as possible. Time is your greatest resource in retirement planning. By managing your money as early as you can, you can take advantage of compounding to add value of your portfolio without lifting a finger.

The Bottom Line

Conceptually speaking, most people would define an ideal retirement investment portfolio as one that allows them to live in relative comfort after they leave the working world.

Your portfolio should always contain the appropriate balance of investments for growth, income, and capital preservation. However, the weight of each of these components should be based on your personal risk tolerance, investment objectives, and time horizon.

In general, you should focus your portfolio either completely or predominantly on growth until you reach middle age, at which time your objectives may begin to shift toward income and lower risk.

Still, different investors have different risk tolerances, and if you intend to work until a later age, you might be able to take greater risks with your money. The ideal portfolio is, thus, always ultimately dependent upon you and what you are willing to do to reach your goals.

I am a seasoned financial advisor with years of hands-on experience in investment management and retirement planning. Throughout my career, I've assisted numerous clients in crafting and maintaining sustainable investment portfolios tailored to their unique financial needs and aspirations for retirement.

The concepts outlined in the article you provided resonate deeply with my expertise in investment management and retirement planning. Let's dissect each concept and delve into its significance:

Investment Portfolio:

An investment portfolio is the culmination of various investments across different accounts such as 401(k)s, IRAs, taxable brokerage accounts, and more. It encompasses a diverse array of assets including stocks, bonds, ETFs, mutual funds, and even real estate. Crafting a well-balanced portfolio early in life is essential to leverage the power of compounding over time.

Growth Stocks:

Growth stocks, particularly equities, play a pivotal role in retirement portfolios during the growth phase. These instruments aim to outperform inflation rates, thereby preserving the purchasing power of investments over the long term. Historical data underscores the robust growth potential of stocks compared to other asset classes, emphasizing the importance of incorporating them into retirement portfolios.

Portfolio Diversification:

Diversification involves spreading investments across distinct asset classes and investment vehicles to mitigate risk. It evolves over time, transitioning from a focus on equities in youth to a more conservative mix including bonds and alternative investments as retirement approaches. By diversifying, investors can enhance portfolio stability and minimize exposure to market volatility.

Risk Tolerance:

Risk tolerance reflects an investor's capacity to withstand fluctuations in investment values. As individuals near retirement, their risk tolerance often shifts towards capital preservation and income generation, prompting a reassessment of portfolio composition. Balancing risk with investment objectives is critical to constructing an ideal retirement portfolio aligned with one's financial goals.

Active vs. Passive Management:

Investors face the choice between active and passive portfolio management strategies. While active management may yield higher returns, it often incurs higher fees and requires vigilant monitoring. Conversely, passive management through index funds offers cost-effective exposure to broad market performance. The decision hinges on individual preferences, financial objectives, and tolerance for fees.

Frequently Asked Questions (FAQs):

The FAQs address common concerns surrounding retirement planning, emphasizing the importance of early savings, prudent asset allocation, and ongoing portfolio evaluation. Tailoring investment strategies to accommodate changing circ*mstances and risk profiles is paramount in securing a comfortable retirement.

In conclusion, constructing an ideal retirement portfolio demands careful consideration of individual circ*mstances, risk preferences, and investment objectives. By adhering to sound investment principles and leveraging a diversified approach, investors can navigate market uncertainties and strive towards financial security in retirement.

How to Build an Investment Portfolio for Retirement (2024)


How to Build an Investment Portfolio for Retirement? ›

To build an investment portfolio for retirement, choose your tax strategy and account, quantify your time horizon and evaluate your tolerance for risk. Then design an appropriate asset allocation, using stock exposure for growth and bond exposure for stability.

What is the best portfolio for retirement? ›

Some financial advisors recommend a mix of 60% stocks, 35% fixed income, and 5% cash when an investor is in their 60s. So, at age 55, and if you're still working and investing, you might consider that allocation or something with even more growth potential.

How do I make an investment portfolio for retirement? ›

How to Structure Your Retirement Portfolio
  1. Set aside one year of cash.
  2. Create a short-term reserve.
  3. Invest the rest of your portfolio.
  4. Adapt your strategy over time.

What is the 7 percent rule for retirement? ›

For example, if you have $250,000 in savings, you could withdraw $10,000 in the first year and adjust that amount upward for inflation each year for the next 30 years. Higher withdrawal rates starting above 7 percent annually greatly increased the odds that the portfolio would run out of money within 30 years.

What should my investment portfolio look like at 65? ›

For most retirees, investment advisors recommend low-risk asset allocations around the following proportions: Age 65 – 70: 40% – 50% of your portfolio. Age 70 – 75: 50% – 60% of your portfolio. Age 75+: 60% – 70% of your portfolio, with an emphasis on cash-like products like certificates of deposit.

Can I retire with a $500000 portfolio? ›

It may be possible to retire at 45 years of age, but it depends on a variety of factors. If you have $500,000 in savings, then according to the 4% rule, you will have access to roughly $20,000 per year for 30 years. Retiring early will affect the amount of your Social Security benefit.

How to retire at 62 with little money? ›

If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.

How much cash should a retiree have in their portfolio? ›

It may be reasonable to hold cash to cover one to two years of living expenses.

What is the best retirement portfolio by age? ›

For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.

What should a beginner investment portfolio look like? ›

The Bottom Line

To build a smart portfolio, one should seek to include a wide range of stocks from different industries, regions, and company sizes, and to diversify across different asset classes.

What is the 80 20 retirement rule? ›

What is an 80/20 Retirement Plan? An 80/20 retirement plan is a type of retirement plan where you split your retirement savings/ investment in a ratio of 80 to 20 percent, with 80% accounting for low-risk investments and 20% accounting for high-growth stocks.

What is the 50 30 20 rule after retirement? ›

Key Takeaways. The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

Do I really need 70% of my income in retirement? ›

While the 70-80% Rule is a good starting point, the actual percentage can vary considerably depending on individual circ*mstances.

What is the best portfolio mix for a 60 year old? ›

According to this principle, individuals should hold a percentage of stocks equal to 100 minus their age. So, for a typical 60-year-old, 40% of the portfolio should be equities. The rest would comprise high-grade bonds, government debt, and other relatively safe assets.

Where is the safest place to put your retirement money? ›

The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.

What is the safest investment with the highest return? ›

Here are the best low-risk investments in April 2024:
  • High-yield savings accounts.
  • Money market funds.
  • Short-term certificates of deposit.
  • Series I savings bonds.
  • Treasury bills, notes, bonds and TIPS.
  • Corporate bonds.
  • Dividend-paying stocks.
  • Preferred stocks.
Apr 1, 2024


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