How Our Model Portfolios Can Help You Save

As part of Morningstar's Guide to Saving for Retirement, our director of personal finance, Christine Benz, is walking through the key decision points to ensure your portfolio is poised to help you amass the wealth you will need for retirement.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com.

It can be tricky to put together a retirement portfolio that has growth potential but isn't overly risky. If you have a long time horizon to retirement--at least 10 years--it makes sense to hold the most you can in higher-returning assets--mainly stocks. On the other hand, if you're closing in on retirement, or you've been really disconcerted and made poor decisions during previous market downturns, it's better to park at least some of your money in lower-risk assets like high-quality bonds and cash.

In assembling my model portfolios for Morningstar.com, I've used the allocations of Morningstar's Lifetime Allocation indexes to guide the portfolios' ratios of stocks, bonds, and cash. With just a few exceptions, I've used mutual funds and ETFs that earn Medalist ratings from our analysts. That means that we expect them to outperform their peers on a going-forward basis.

One question I often get is how best to invest in a tax-sheltered account, like an IRA or 401(k), and how to invest in a taxable account. The short answer is to not get too hung up on tax matters. You may have heard that you should hold high-income assets like bonds in your tax-sheltered accounts, because their income is taxed at your ordinary income tax rate. But if you're a young accumulator, you shouldn't hold much of your retirement portfolio in bonds, at all.

Investors who have been following my model portfolios for a while have probably noticed that I don't make frequent changes to them. That's by design. I love the saying that your investment portfolio is like a bar of soap: the more you handle it, the smaller it gets! Check up on your retirement portfolio just once or twice a year--and quarterly at most.

Thanks for watching. I'm Christine Benz forMorningstar.com.