Morningstar's Model Retirement Saver Portfolios
For investors who are accumulating assets for retirement, we create strategic ETF and mutual fund portfolios.
Note: This article is part of Morningstar's Guide to Saving for Retirement. An earlier version of this article appeared on Sept. 14, 2015.
Investors who watch a lot of financial television might assume the key to successful portfolio management is constant activity, all with an eye toward staying a step ahead of the crowd. If you invested based on the news flow, you'd be downplaying the eurozone and healthcare stocks right now, while perhaps emphasizing cyclically oriented firms that stand to benefit from continued economic strength.
If everything lines up in your favor, you can come out ahead. But fast-trading strategies can be costly, too. Not only do too-active investors incur higher trading (and potentially tax) costs than more hands-off investors do, but very active investors also subject themselves to the costs of bad timing. Investors crowded into bond funds in the years following the financial crisis, for example, when in reality they should have been rebalancing back into stocks. Morningstar's investor returns data demonstrate how investors make these poor timing decisions.
Because bad timing can eat into returns--even more than stated investment expenses do--Morningstar generally counsels a strategic approach to portfolio management. In contrast with the tactical, market-timing investor, the strategic investor finds a sensible asset mix given her proximity to needing her money, then makes only gradual adjustments, periodically rebalancing and making her asset mix more conservative as the years go by. Patience, discipline, and sturdy core investments--rather than sharp timing acumen--are the keys to making the strategic approach work.
To help illustrate sensible asset allocation, investment selection, and portfolio management principles--and to show how some of Morningstar analysts' best ideas can work in the context of a total portfolio--we've created a variety of model portfolios. We've created in-retirement "bucket" portfolios, as well as retirement "saver" portfolios, geared toward investors who are still accumulating assets for retirement. All of the portfolios use Morningstar's Lifetime Allocation Indexes to determine their asset allocations and are populated with funds and ETFs that are favorites among Morningstar's analysts.
We created a series of traditional mutual funds--featuring aggressive, moderate, and conservative asset-allocation mixes--as well as a series consisting entirely of ETFs, also with aggressive, moderate, and conservative versions. Fund family or platform loyalists can also check out our Saver portfolios for Vanguard, Fidelity, T. Rowe, and Schwab investors on our Model Portfolios homepage. (See the model portfolios "For Savers" on the bottom half of the page.)
Investors can adopt the portfolios wholesale, but perhaps the greater benefit is as a check on their asset allocations and investment choices. While investors may ultimately choose to customize their portfolios based on individual-specific factors--some of which are outlined here--the portfolios aim to provide investors with a "sanity check" for their own portfolios' asset allocations. Moreover, we'll periodically update the portfolios with an eye toward illustrating good portfolio hygiene. This video addresses how investors might use the portfolios to evaluate their own investing programs.