In Your 30s, Think About Your 60s

The more years invested in retirement savings, the better

match, for another $1,500. Say she earns 8% a year inside her 401(k). By the time she’s 65, she’ll have over $1 million in the account.”

Jordan recommends diversifying your holdings as a way to reduce short-term volatility. “If you invest though funds, about half of your stock market allocation might be in funds holding large domestic companies,” she says. “For the other half, you might spread your investments among mutual funds and exchange-traded funds (ETFs) that hold international stocks, small companies, medium-sized companies, and specialty funds such as those investing in real estate.”

To Long, low-cost broad index funds make the most sense. His picks include Vanguard Total Stock Market Index Fund (VTSMX), Vanguard Total International Stock Index Fund (VGTSX), and Vanguard REIT Index Fund (VGSIX), which invests in real estate investment trusts (REITs). As an example of their low costs, VTSMX charges only 0.15% per year. If your 401(k) does not have these funds on the menu, look for what’s available in terms of low-cost funds with many holdings.

If 60% to 80% of your portfolio is in stocks, while you’re in your 30s, then 20% to 40% will be in fixed-income investments, which provide current yield and lower risk of loss. “We like laddered CDs,” Fulbright says. That is, you might put some money into a one-year bank certificate of deposit, some into a two-year CD, etc., out to five years. As each CD matures, you’d buy a new five-year CD. Fulbright also suggests Treasury Inflation-Protected Securities (TIPS) and regular bonds with maturities no longer than seven years.

While you’re diversifying your portfolio, avoid the temptation to load up on shares of your employer’s stock, no matter how wonderful the company’s prospects seem to be. “It’s too risky to have your retirement depend on just one company,” Jordan says. From Enron to Bear Stearns, recent years have produced all too many stories of employees who regretted excess exposure to company stock.

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