Best Investments for Retirement
Common building blocks for retirement portfolios and how they shift over time.
Written by the SmartRates Academy Team · Reviewed by M. Reyes, Financial Systems Architect & Data Analyst
🎯 Key Takeaways
- Common building blocks for retirement portfolios include broad stock index funds, bond funds, and target-date funds
- Asset allocation — the mix between stocks and bonds — is often adjusted to become more conservative as retirement approaches
- Target-date funds automate this adjustment, gradually shifting allocation based on an intended retirement year
- There's no single 'best' investment for everyone — appropriate choices depend on time horizon, risk tolerance, and individual circumstances
Common building blocks
Retirement portfolios — whether in a 401(k), IRA, or taxable account used for retirement saving — are often built from some combination of: broad stock index funds (covered in Investing for Beginners), which provide diversified exposure to company growth over long time horizons; bond funds, which tend to be less volatile than stocks and provide income through interest payments; and sometimes other asset classes like real estate (through REITs) or international stocks, depending on the desired diversification.
The specific mix — known as asset allocation — is a significant factor in a portfolio's overall risk and return characteristics, generally considered more impactful than the selection of individual securities within each asset class.
Why allocation often shifts over time
A common principle in retirement investing is that asset allocation often becomes more conservative (a higher proportion of bonds relative to stocks) as retirement approaches and progresses. The general reasoning is that someone decades from retirement has time to recover from the larger price swings ('volatility') that stocks can experience, while someone near or in retirement has less time to recover from a significant decline before potentially needing to draw on the portfolio for income.
This doesn't mean stocks are 'removed' entirely even in retirement — many retirement portfolios maintain some stock allocation throughout retirement, since retirement itself can last decades, and some growth potential can help a portfolio keep pace with and support a longer withdrawal period. The specific glide path (how allocation shifts over time) varies considerably based on individual risk tolerance and circumstances.
Target-date funds
A target-date fund is a type of fund designed around an intended retirement year (e.g., a '2050 fund'), automatically adjusting its asset allocation over time — typically starting with a higher stock allocation when the target date is far away, and gradually shifting toward a higher bond allocation as the target date approaches and, in some funds, continuing to adjust for some time after the target date.
Target-date funds are often used as a single, simple investment option that handles the asset allocation decision and its adjustment over time automatically — an option some investors find appealing for its simplicity, particularly within 401(k) plans where they're commonly offered as a default option.
Example: How a target-date fund's allocation might shift
A hypothetical 2055 target-date fund, used by someone with several decades until retirement, might hold a relatively high percentage in stock funds and a smaller percentage in bond funds.
As 2055 approaches, the fund would gradually shift — increasing the bond fund percentage and decreasing the stock fund percentage — without the investor needing to manually make these adjustments.
By the target year (or some years after, depending on the fund's specific 'glide path'), the allocation would typically have shifted to a considerably more conservative mix than it started with decades earlier.
Tax-advantaged account considerations
Within tax-advantaged accounts (401(k)s, IRAs), the available investment options are typically limited to a menu chosen by the plan provider (for 401(k)s) or whatever the account provider offers (for IRAs, which often have a much wider range of options, including individual stocks, in addition to funds). Choosing among available index funds, target-date funds, or other options within these constraints is a common starting point for many retirement savers.
There's no single right answer
What's appropriate for a retirement portfolio depends on factors including time horizon (years until retirement and expected retirement duration), risk tolerance (comfort with portfolio value fluctuations), other sources of retirement income (like Social Security or pensions, which can affect how much portfolio risk feels appropriate), and overall financial situation. This Academy provides general educational information about common approaches, not personalized investment advice — for guidance specific to individual circumstances, consulting a financial professional is often valuable.
Example: comparing a do-it-yourself mix to a target-date fund
An investor 30 years from retirement builds their own portfolio: 70% in a total stock market index fund, 20% in an international stock index fund, and 10% in a bond index fund — and plans to manually shift this mix toward bonds every few years as retirement approaches.
A 2056 target-date fund might hold a broadly similar starting mix (perhaps 80-90% stocks, split between domestic and international, with a small bond allocation) and automatically shift toward, say, 50% stocks / 50% bonds by the target date — without the investor needing to remember to rebalance or having to decide exactly when and how much to shift. The end results can be similar; the difference is mainly in who (or what) manages the ongoing adjustment.
Frequently Asked Questions
Are target-date funds a 'set it and forget it' solution?+
They're designed to require less ongoing management than manually adjusting allocation across multiple funds, since the allocation shift is automated — though it's still worth periodically reviewing whether the fund's glide path and underlying holdings align with one's own circumstances and risk tolerance, which can change over time.
Should retirees hold any stocks at all?+
Many retirement income approaches do include some stock allocation even during retirement, given that retirement can last decades and some growth potential can help offset inflation over a long withdrawal period — though the appropriate amount varies by individual circumstances and is a common topic for discussion with a financial professional.
What's the difference between asset allocation and individual stock selection?+
Asset allocation refers to the broad mix between asset classes (like stocks vs. bonds, or domestic vs. international), while individual stock selection refers to choosing specific companies within an asset class. Many retirement portfolios — particularly those built around broad index funds — focus primarily on asset allocation rather than individual stock selection.
⚠️ Mistakes to avoid
✕ Staying 100% stocks right up to retirement.
→ A late crash can be devastating with no recovery time. Glide more conservative.
✕ Holding multiple overlapping target-date funds.
→ One is meant to be the whole portfolio. Stacking them undoes the design.
✕ Copying a friend's allocation.
→ Your horizon and risk tolerance differ. Tailor it.
✍️ Your turn
Sketch a glide path
Outline how your allocation should shift across the decades to retirement.
- Note your target retirement year.
- Sketch a stock/bond mix now, at mid-career, and near retirement.
- Compare to a target-date fund's glide path.
Next recommended lesson
Retirement Planning by Age →
Retirement Investing