When you hear about investing for retirement, you usually hear about mutual funds—more specifically, index funds—especially if you have been reading my articles. It’s not just me. However, you don’t hear as much about specific index funds based on your age.
Index funds are widely held as one of the best investments for retirement.
Especially if you want the easy way out.
Even Warren Buffett recommends index funds for the average investor.
That’s all well and good but with thousands available, which ones should you invest in?
Good question, and here is the answer…
Determine Your Situation
This is going to be a very straightforward explanation.
That means it won’t be all-inclusive. This article is very generalized, and because of that, some things may be left out. The goal is to give you a general idea of what you need to do.
I will give you specific funds, including links to view them.
Related: Retirement 101: When and How to Start Contributing to Your Retirement.
First, you need to determine your situation.
The main factor is your age.
Other factors may include:
- Your current assets
- Your current retirement balance
- An incoming inheritance
You will need to determine your retirement goals depending on when you plan to retire and the quality of life you want to have once you do retire.
I’ll recommend specific index funds based on your age. Obviously, this isn’t a “one size fits all” scenario, but it’s a great guideline.
If you can’t afford the minimum initial investment of the fund(s) you want, begin with a starter mutual fund with a lower initial investment until you have enough to invest in the fund you want.
Aggressive: If You’re Under 30
You have plenty of time to be aggressive in your investing habits now. Here are some funds to include in your portfolio:
- Vanguard Small-Cap Growth Index Fund Investor Shares (VISGX)
Aggressive to Moderate: 30 to 40
You still have time but must start being a little more conservative. You could still keep part of your portfolio in the above index funds, but here are some index funds to add:
- Vanguard Growth Index Fund Investor Shares (VIGRX)
- Vanguard High Dividend Yield Index Fund Investor Shares (VHDYX)
- Vanguard 500 Index Fund Investor Shares (VFINX)
Moderate to Conservative: 40 to 50
By this point, you may want to cut your aggressive funds down drastically, depending on the level of risk you are willing to take. Here are some funds to add and replace the more aggressive funds with:
- Vanguard Intermediate-Term Bond Index Fund Investor Shares (VBIIX)
- Vanguard Emerging Markets Government Bond Index Fund Investor Shares (VGOVX)
Conservative: If You’re Over 50
Now, you shouldn’t have any aggressive funds unless you like living on the edge. You may want some of your portfolio in moderate funds, but now the majority of your portfolio should include funds like this:
- Vanguard Short-Term Bond Index Fund Investor Shares (VBISX)
- Vanguard Target Retirement Income Fund (VTINX)
Final Words
You can include a variety from the lists given here. These aren’t the only index funds you should own. This is just a guideline.
Put more into aggressive funds when you’re young. Put more into conservative funds when you’re older. That’s the main takeaway.
There are also plenty of other companies that offer great funds. I just listed Vanguard because they are well-established and I like their funds.
As I said, this list doesn’t apply to everyone, but it can give you an idea of where your money should be.
Different people have different goals, and every situation is unique.
This is as close to a step-by-step guide as it gets for the broad topic of retirement.
One last note: just because a fund isn’t in your age range doesn’t mean you shouldn’t buy it. This is for the “average” investor. For example, almost anyone would benefit from owning an S&P 500 index fund.
I hope this has helped you! Read more on investing here.
Photo Credit: Robert Parviainen