Core principles
Tax-advantaged accounts are ideal for long-term wealth building. Keep it simple with broad diversification and low costs.
Asset allocation first
Decide your stock/bond mix based on time horizon and risk tolerance
Use broad, low-cost index funds/ETFs
Capture market returns with minimal fees and maximum diversification
Automate contributions and rebalancing
Remove emotions and maintain target allocation over time
Stay the course
Avoid frequent changes and market timing attempts
Asset allocation by time horizon
| Time to Retirement | Conservative | Moderate | Aggressive |
|---|---|---|---|
| 30+ years | 80% stocks, 20% bonds | 90% stocks, 10% bonds | 100% stocks |
| 15-30 years | 70% stocks, 30% bonds | 80% stocks, 20% bonds | 90% stocks, 10% bonds |
| 5-15 years | 50% stocks, 50% bonds | 70% stocks, 30% bonds | 80% stocks, 20% bonds |
| <5 years | 30% stocks, 70% bonds | 50% stocks, 50% bonds | 60% stocks, 40% bonds |
Simple portfolio options
One-Fund Solution
Target-Date Funds
Automatically adjusts allocation as you age (e.g., Target 2060)
Balanced/All-in-One ETFs
Fixed allocation across global stocks and bonds
Examples
US: Vanguard Target Date, Fidelity Freedom; Canada: Vanguard All-in-One ETFs (VGRO, VBAL)
Three-Fund Portfolio
US/Home Country Equity (40-70%)
Total Stock Market or S&P 500 index fund
International Equity (20-40%)
Developed + emerging markets
Bonds (10-50%)
Total bond market or aggregate bond index
Recommended funds by region
🇺🇸 United States
| Asset Class | Vanguard | Fidelity | Schwab |
|---|---|---|---|
| US Total Market | VTSAX/VTI | FZROX/FSKAX | SWTSX/SCHB |
| International | VTIAX/VXUS | FTIHX/FZILX | SWISX/SCHF |
| Bonds | VBTLX/BND | FXNAX/FSKAX | SWAGX/SCHZ |
| Target Date | VFFVX series | FDVV series | SWYJX series |
🇨🇦 Canada
| Asset Class | Vanguard | iShares | TD |
|---|---|---|---|
| Canadian Equity | VTI | ITOT | TDB902 |
| US Equity | VTI | ITOT | TDB902 |
| International | VEA | IEFA | TDB911 |
| All-in-One | VGRO/VBAL | XGRO/XBAL | TDBG/TDBALANCE |
Tax-efficient fund placement
Tax-Advantaged Accounts
- • Bonds and bond funds: Interest taxed as ordinary income
- • REITs: High dividend yields, taxed heavily
- • International stocks: Dividend withholding considerations
- • Actively managed funds: Generate more taxable distributions
- • High-turnover strategies: Create short-term capital gains
Taxable Accounts
- • Tax-efficient index funds: Low turnover, minimal distributions
- • Individual stocks: Control timing of capital gains
- • Tax-managed funds: Designed for tax efficiency
- • Municipal bonds: Tax-free interest (US)
- • Growth-focused investments: Unrealized gains not taxed
Rebalancing strategy
When to Rebalance
Calendar-based
Annually or semi-annually on set dates
Threshold-based
When any asset class drifts 5-10% from target
New money rebalancing
Direct new contributions to underweight assets
Rebalancing Methods
Sell high, buy low: Trim overweight assets, add to underweight
Contribution rebalancing: Direct new money to restore balance
Tax-loss harvesting: Use losses in taxable accounts to offset rebalancing gains
Common mistakes to avoid
⚠️ Portfolio Pitfalls
- • Over-diversification: Owning 20+ similar funds that overlap
- • Home country bias: Not enough international diversification
- • Chasing performance: Switching to last year's winners
- • High fees: Actively managed funds eating returns
- • Market timing: Trying to time entry and exit points
- • Emotional decisions: Selling during downturns, buying at peaks
Special considerations
Individual Stocks and "Satellite" Holdings
Keep individual stocks to 5-10% maximum of portfolio
Consider company stock from employer as part of this allocation
Sector-specific ETFs are also "satellite" holdings
Core index funds should be 80-90% of holdings
Alternative Investments
REITs: 5-10% allocation for real estate exposure
Commodities: Small allocation for inflation protection
Cryptocurrency: Maximum 5%, treat as speculative
Remember: Alternatives often increase complexity without improving returns
Glidepath strategy
Age-Based Allocation Shift
Traditional rule: 120 - your age = stock %
30 years old = 90% stocks; 50 years old = 70% stocks
Modern version: Shift 1-2% per year
More gradual decline accommodates longer lifespans
Target date funds automate this
Professionally managed glidepaths with automatic rebalancing
💡 Pro Tips
- • Start simple: One target-date fund is better than analysis paralysis
- • Focus on costs: Every 0.1% in fees costs thousands over decades
- • Automate everything: Contributions, rebalancing, increases
- • Ignore daily noise: Check accounts monthly at most
- • Stay disciplined: Stick to your plan through market volatility
Frequently Asked Questions
Are individual stocks okay in retirement accounts?
If you must own individual stocks, limit them to 5-10% of your portfolio and treat them as "satellite" holdings around a core of broad index funds. Most investors are better served with diversified funds.
How often should I rebalance?
Annually is sufficient for most investors, or when any asset class drifts more than 5-10% from target. More frequent rebalancing rarely improves returns and can increase trading costs.
Should I include crypto and alternatives?
Keep speculative investments small (under 5%) and understand the custody and tax rules. Traditional asset classes provide better risk-adjusted returns for most retirement portfolios.
What's better: target-date funds or building my own?
Target-date funds are excellent for most investors—professional management, automatic rebalancing, and age-appropriate allocations. Build your own only if you want more control and will maintain discipline.