Three Sample Roth IRA ETF Portfolios for Various Investment Time Frames

Pizza pie chartIn 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 (AMEX:IVV) or the ProShares Ultra S&P 500 Index ETF (NYSE: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 portfion 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 (through ING Direct) because Sharebuilder makes it easy for a new investor to set up an automatic investment plan. Just click over to Sharebuilder, 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!

Recommended reading about ETF investing:

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