Three Sample Roth IRA ETF Portfolios for Various Investment Time Frames
In general, if you have a long investment time frame, then a greater percentage of your investment portfolio should be in aggressive, higher-risk investments such as stocks. As your investment time frame gets shorter, a greater percentage of your portfolio should be in more conservative, lower-risk investments such as bonds.
Below are three very simple Roth IRA portfolios using ETFs (exchange traded funds) for various investment time frames that you can use as-is or customize according to your own investment philosophy and goals:
Short-Term ETF Portfolio (0 to 5 years):
40% Bonds (BND or AGG)
60% Stocks (IVV or SSO)
Intermediate-Term ETF Portfolio (6 to 10 years):
20% Bonds (BND or AGG)
80% Stocks (IVV or SSO)
Long-Term ETF Portfolio (11 or more years):
100% Stocks (IVV or SSO)
To keep these sample portfolios as simple as possible, I used S&P 500 Index ETFs for the stock portion of the portfolios: the iShares S&P 500 Index ETF (IVV) or the ProShares Ultra S&P 500 Index ETF (SSO).
If you would like to be even more aggressive, especially for the long-term portfolio, you could use a growth or value ETF (such as IVW or IVE) for the stock portion of the portfolio, or you could use a mix of small-cap and mid-cap Index ETFs (such as IWM or IJH).
Key Lessons:
If you are investing for more than 10 years, your entire portfolio should be in stocks or stock funds.
To keep a portfolio simple and diversified, use a single broad-market index fund ETF or a balanced mix of different types of index fund ETFs.
As you get closer to needing the money from your investments (that is, as your investment time frame gets shorter), a greater percentage of your portfolio should be dedicated to more conservative investments such as bonds or bond funds. Again, to keep the portfolio simple, use a broad-market bond fund ETF.
To keep the trading fees low, purchase only one investment at a time, perhaps by alternating which investment you purchase each month.
Rebalance your portfolio once per year to bring the ratios between investments back into proportion, or when your investment time frame has changed.
If you are absolutely new to investing, I still recommend that you open an account with Sharebuilder because Sharebuilder makes it easy for a new investor to set up an automatic investment plan. Just click over to Sharebuilder (now E*Trade), open a Roth IRA account, and follow the prompts to set up an automatic investment plan.
Investing for the long-term is much simpler than you think! Just do it! Later in life, you will thank your younger self!
