How to Build an Investment Portfolio for Retirement

Focus on growth now and income later

Think of an investment portfolio as a basket that holds all of the investments that you have in your various retirement plans and taxable accounts. Ideally, the value of your portfolio will grow throughout your working years so that it can provide you with the income you need to live out your retirement in comfort.

So, if your goal is to invest for these later years, read on to learn some basics about how to build an investment portfolio for retirement.

Key Takeaways

  • An ideal retirement investment portfolio should focus on growth investments, particularly in your younger years.
  • Later in life, the focus shifts from growth to income and capital preservation.
  • No matter your age, it's essential to diversify and rebalance your portfolio as your goals, risk tolerance, and time horizon change.
  • One key to having enough money in retirement is to make the most of the power of compounding by starting to save and invest as early in life as you can.

Investing After the Golden Age

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, and 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 (held either inside or outside your 401(k) or other stock purchase plan). 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 of volatility in 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.

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 a Big Retirement Portfolio Mistake?

Perhaps the biggest mistake we can make with regard to our future retirement funds is not starting to save and invest as early as we possibly can, e.g., in our twenties. If you make this mistake, you can miss out on the truly incredible power of compounding to add to the value of your portfolio (without you lifting a finger). The greatest financial benefit of compounding takes time.

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 quit 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 always be based on your 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 on what you are willing to do to reach your goals.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. New York Life Investments. "Ibbotson SBBI; Stocks, Bonds, Bills, and Inflation 1926-2022."

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.