Mutual Funds for Retirement: Simple Portfolios Suggestions - NerdWallet (2024)

You know you need to save for retirement, and you know that generally means investing. The tough question is: Where should you invest your money? There are thousands of mutual funds for retirement from which to choose.

Of course, if you’re investing through a workplace retirement plan, such as a 401(k), your choices are limited. Still, if you feel like the opposite of a savvy stock picker, those choices might seem like too many. Here’s the good news: It doesn’t have to be that complicated. You can create a smart, diversified investment portfolio with just a handful of mutual funds for retirement.

Why you don’t need a lot of mutual funds for retirement

One key to successful investing is to make sure your investments are diversified. You want your investments to be spread out over a lot of companies in different industries and locales. That way, even if one company or industry starts to suffer, the others are unlikely to follow suit. And those occasional times when all stocks seem to be in free fall? That’s when the bond portion of your portfolio sustains you.

Mutual funds invest in companies. They’re designed so individual investors can own shares in many companies, often via a single fund. That means you can own a broadly diversified investment portfolio with just a few mutual funds for retirement.

Model portfolios make fund selection easy

Once you've committed to diversifying through mutual funds for retirement, the next question is: Which funds are best for you? Some finance experts have created so-called lazy portfolios aimed at people who plan to hold their investments for the long term. You can simply recreate these portfolios in your 401(k), individual retirement account or other retirement account. You can even spread your lazy portfolio across all of your various accounts, by 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 build them using similar funds from various mutual fund companies.

A two-fund portfolio

A portfolio that is 60% in an international ETF and 40% in a bond market ETF may earn less than a portfolio invested solely in a stock fund, but you’d leave yourself more vulnerable to a stomach-churning roller coaster during a financial crisis.

The more diversified, two-fund portfolio might drop in a financial crisis, too, and that’s not exactly fun, either. But it’s less likely to cause you to dive for the exit exactly when it’s most important to sit tight and await the coming market gains.

More complex — and simpler — options

Those seeking even greater diversification could add two asset classes: real estate and Treasury inflation protected securities, or TIPS.

Say you want 60% of your portfolio in stocks and 40% in bonds. You could put 30% of your portfolio into a total bond market mutual fund and 10% into a TIPS fund. On the stock side, you could put 45% of your portfolio in a global stock fund and 15% in a real estate investment trust fund.

Or, if you want to get ultra-simple, you could invest in just one fund. Generally, that would mean a balanced index fund or a target-date retirement fund, which would not only create a diversified portfolio for you but also rebalance that portfolio over time.

Be mindful of fees

When picking any fund, however, be wary of fees. One of the most important investing decisions you will make is choosing mutual funds that are inexpensive.

What does low-cost mean? Generally, a mutual fund expense ratio of 1% or more is expensive. Many funds charge less.

After you create your lazy portfolio, sit back, put your feet up and think about anything else but investing.

Or, if even a lazy portfolio sounds like too much work, robo-advisors offer a low-cost route to a balanced, diversified portfolio. Check out our picks for best robo-advisors.