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Trying to beat the market is like running a marathon in muddy boots: it creates drag and makes success unlikely. The costs and effort of trying to outguess the market usually slow you down.
Most people want a large retirement nest egg but aren’t sure how much to save or where to invest. A “lazy” asset allocation can help. It’s called lazy because it simplifies the process, but it still requires discipline and the willingness to make trade-offs.
Start with an automatic transfer from your paycheck or bank account into an investment account—your 401(k), IRA, brokerage account, or a mix. Automating savings keeps the money out of sight and out of your spending, so it grows for retirement and long-term goals. That simple step removes much of the need to agonize over budgeting: spend what’s left in your checking account and let the automated savings build your future.
Automatic saving alone isn’t enough. You also need to diversify between stocks and bonds, and include both domestic and international stocks for better diversification. Historically, stocks have outperformed bonds and cash over long periods, though they’re more volatile.
How you split stocks and bonds depends on your age and risk tolerance. Younger investors can afford a heavier stock allocation because they have more time to recover from downturns. Older or conservative investors should favor bonds or other fixed-income holdings.
Examples of simple, low-cost choices include broad stock funds like Vanguard Total World Stock (VT/VTWSX) or an S&P 500 fund (SPY), with international exposure via a fund such as iShares Core MSCI Total International (IXUS). For bonds, a broadly diversified option is iShares Core US Aggregate Bond (AGG). With just a few funds you can build a diversified portfolio.
Past returns vary by period. Those who started in 2000 saw weaker results due to the dot-com crash but still averaged about 6.2% annualized from 2000–2022. Long-term averages for decades-long investors tend to fall between about 9% and 10%, while some recent 10-year periods show roughly 9.6% with dividends reinvested. Your future returns will depend on market performance and your chosen mix of stocks and bonds.
Bond behavior has been unusual recently. With interest rates very low for much of the last 20 years, bond returns were muted. Rising rates have pushed down bond prices, but bond funds are now yielding higher income—around mid-single digits for many—so bonds can provide income now and capital gains if rates fall later. That interplay is one reason diversification matters: when one asset class suffers, another often helps cushion overall returns.
A commonly suggested rule of thumb for allocation is 120 minus your age as the percentage in stocks, with the balance in bonds. For example, a 50-year-old would hold about 70% in stocks and 30% in bonds. Tools like online asset allocation or retirement calculators can help you refine your personal mix.
Remember that any projected target—such as a hypothetical portfolio value based on a 7% annual return—is an estimate, not a guarantee. Regular, disciplined investing increases the chance of building a substantial retirement nest egg, but outcomes will vary. If you prefer professional help, consult a qualified financial advisor for personalized guidance. This content is for informational purposes and not a substitute for individualized investment advice.
