This aricle is part of the Retirement Financial Life Equation (RFLE) series. It was initially published on June 6, 2018, and updated in January 2026.
When it comes to choosing your approach and how to implement it, you have several choices here. The main distinction is between doing it yourself (DIY) and hiring an investment advisor. Most people are, by default, do-it-yourselfers as they choose the investments in their 401(k) or 403(b). They may or may not be doing so in an IRA. However, as we shall see, both have their advantages and drawbacks – the right option for you depends on your particular situation.
Managed portfolio
This is usually a portfolio of investments managed by a professional advisor based on your situation and risk tolerance, typically with a “total return” approach to growth (more on this later). Preferably, your portfolio manager is a financial professional who has a fiduciary responsibility to act in your best interest, but most importantly, someone that you have confidence in and trust.
You would more commonly use this approach in an IRA, but some employers offer “managed portfolios” as part of their 401(k) offerings. The “portfolio manager” constructs the portfolio based on your age, risk tolerance, planned retirement date, investment objectives, and other factors. There are costs associated with this approach. An example of a “managed portfolio” is one offered by Fidelity Investments. Fees for managed portfolios typically range from 0.35% to 1.50% of assets annually, depending on the level of service. That is a good option for someone who wants to rely on a financial professional to help them with their investment choices and make changes when conditions warrant.
Many portfolio managers subscribe to something called “Modern Portfolio Theory” (MPT). You can find many sophisticated definitions of MPT. They’ll use phrases like “correlation index,” “efficient frontier,” and “variance and standard deviation.” But what it is really about is the relatively simple principle of optimal diversification that achieves the best results with the lowest possible risk. Moreover, to further simplify, do not put all your eggs in the same basket.
So, MPT is mainly about using the right mix of asset types in your portfolio to maximize returns while minimizing risk. You “diversify” across different asset types so that, under certain economic circumstances, one may go up while the other goes down, and vice versa.
As a retiree now, I continue to see the value of diversification in my own portfolio. When I review my Fidelity holdings, I often see that while some investments are down on a given day, others are up. (That isn’t always the case – I have seen them all red and also all green, particularly during significant market moves.)
Sometimes, when one type of asset (e.g., stocks) are down, others (e.g., bonds) will be up. Depending on the factors driving volatility, even though an asset class may be quite volatile at any given time, diversification tends to make the overall portfolio less volatile.
I like this approach and use a variation of it myself. I am probably not as diversified as most MPT portfolios, which may hold 10 or 15 different asset classes, but I am using the principle. I have a mix of stocks (domestic and international), bonds (short- and long-term), and alternatives, as well as cash holdings. (If you want to read more about MPT and get help to build a portfolio based on MPT methods, I recommend 7Twelve: A Diversified Portfolio with a Plan.)
Also, if you decide you want to go the managed-portfolio route, there are many ways to implement it. I discussed most of them in an earlier article on financial advisors.
Do-it-yourself (DIY)
With this approach, you take responsibility for building your portfolio, so it can be almost anything you like. You can use this approach in either a 401(k) or an IRA, but with a 401 (k), you may have a limited number of investment options. If your company plan offers a self-directed brokerage account option, then you will have much more flexibility. Typically, you’re going to aim for a well-diversified portfolio to maximize “total return.” Still, it may lean more toward growth or income, depending on your age and risk tolerance.
For example, I manage my own IRA. As a retiree, I have become more conservative and have oriented my investments more toward income and capital preservation than pure growth. I have a significant percentage of my assets in bond funds and dividend-paying stock funds, reflecting this priority shift.
The costs for the DIY option are usually lower than those for a managed portfolio, but you will still have to pay management fees for the investments you choose. With zero-commission trading now standard at major brokerages, and with expense ratios for index funds often below 0.10%, DIY investing has never been more affordable. You can implement this for an IRA account at Vanguard, Schwab, Fidelity, and other brokerages.
Single fund approach
This approach is usually a variation of the DIY model discussed above. It is the height of simplicity, and you would typically use a “Target Date Retirement Fund” to implement it. You could use this in your 401(k) (if available), your IRA, or both. With this approach, you purchase a single fund based on your age and desired retirement date. The fund automatically adjusts its asset allocation (mostly stocks and bonds) as you age, moving from a more to a less “aggressive” allocation of stocks. The main cost of this approach is the fund’s management fee, which is relatively low in most cases. A good example is the Vanguard Target Retirement 2045 Fund (VTIVX). It charges a fee of only 0.08% as of 2025. This fund can be an excellent choice for someone looking for an effortless yet effective option.
I have heard some suggest that you can build an entire portfolio with just one or two funds. That’s undoubtedly true for target-date and other lifestyle funds. However, you could also use a total stock market fund, such as the Vanguard Total Stock Market Index Fund (VTI/VTSAX) or the Fidelity Total Market Index Fund (FSKAX). Fidelity even offers its ZERO Total Market Index Fund (FZROX) with an absolutely zero expense ratio. With either of these funds, you would capture what the total stock market offers you. If you wanted to add bonds to the mix, you could add a total bond fund such as Vanguard Total Bond Market (BND/VBTLX) or Fidelity Total Bond Fund (FTBFX).
Which is best?
That’s a tricky question to answer. As I have written before, most people would do well to use a financial advisor, preferably one with no conflicts of interest. I have written extensively about financial advisors and how to choose one. The most significant advantage in using a trusted advisor is not so much in the investments they choose; it’s what they do to help you keep a steady hand on the wheel, especially when things get tough.
If you’re comfortable doing it yourself and think you can stick to your strategy during thick and thin, you may come out better in the long run. That’s because advisor fees can add up – and remember, they’re in addition to whatever fees you’re paying for the investments themselves.
If you’re interested in going the DIY route, I would strongly suggest taking the time to educate yourself. You don’t have to be a CPA or a CFP to do it, but you do need some basic knowledge, wisdom, and discipline. To that end, many good books and blogs on investing offer excellent ideas for asset allocation. I have listed several on the blog’s Resources page. If you’re a “beginner”, consider: Sound Mind Investing Handbook (by Austin Pryor), The Bogleheads Guide to Investing (by the Bogleheads), The Little Book of Common Sense Investing (by John C. Bogle), The Little Book of Bulletproof Investing (by Ben Stein & Phil DeMuth), and Investing Made Simple (by Mike Piper, CPA). To go more in-depth, look at Unconventional Success: A Fundamental Approach to Personal Investment (by David F. Swensen), A Wealth of Common Sense (by Ben Carlson), and Financial Fitness Forever (by Paul Merriman & Richard Buck).
Your investing goal
Regardless of which approach you choose, you’ll need to develop a basic investing strategy. Will you invest for growth, income, or total return? Since you are investing for retirement, we are mainly concerned with how specific investment types contribute to increasing the value of your portfolio over time. You can use these different investment strategies in both 401(k) and IRA accounts – your focus could be on growth, income, or both (also known as “total return”). Let’s take a closer look at each of these:
Growth investing
For most people in the accumulation stage, the main objective is long-term growth, without taking on more risk than they are comfortable with. The most common investments are growth stocks that grow earnings faster than others, which translates into growth in share price (a.k.a., “capital gains”). Because most “growth companies” retain earnings and reinvest them in the business, they typically don’t pay dividends to shareholders.
You can invest in growth stocks by picking them yourself or by consulting your broker or advisor, who will buy them for you (now with zero commission at most major brokerages). An alternative is to let your broker/advisor select them for you without your direct involvement. Both of these approaches can be riskier if neither of you has deep expertise or experience in this area.
This is why many people opt for growth-oriented mutual funds or ETFs. Such funds hold many different growth stocks selected by the fund’s asset managers. You (or your broker/advisor) choose the funds (instead of the stocks) that have a good chance of increasing in value.
An excellent example of a growth company fund is the Fidelity Growth Company Fund (FDGRX). Another good example is the iShares Russell Growth 1000 ETF (IWF). It comprises over 400 stocks that track the Russell 1000 Growth index, which measures the performance of large- and medium-size companies expected to grow earnings faster than the broader market.
There are many others out there – look for consistent performance and low cost when choosing one.
Value investing
A variation of stock picking is to focus on “value” stocks. It is the strategy espoused by famous investor Warren Buffett. It involves choosing undervalued stocks based on a detailed analysis of the company’s fundamentals, such as income and balance statements, management, competition, markets, etc.
The success of this approach is to buy stocks when they are “on sale”; i.e., at a price that is less than what it is really worth. Theoretically, there is less risk in such a purchase, combined with a greater probability that it will outperform growth stocks over the long term. Many “value” stocks also pay dividends, which helps to provide a margin of safety.
Some studies have shown that value stocks outperform growth stocks over the long term, though this relationship has varied in recent years. The challenge is in finding them. You can buy individual value stocks, but you have to do your homework. Fortunately, there are also plenty of value stock mutual funds and ETFs, which you can use instead of individual stocks.
An excellent example of a value stock fund is the Fidelity Low-Priced Stock Fund (FLPSX). A good example of a value-stock-oriented ETF is the Vanguard Value ETF (VTV) which invests in large U.S. companies that are thought to be undervalued by the market relative to comparable companies.
Some value stocks pay income, which can be attractive. However, to see a significant increase in the share price, you may need to hold the fund for quite some time.
Income investing
Income investing is just as it sounds – investing in assets whose primary objective is generating income. Income-generating assets include stocks, bonds, and real estate. While they may offer some opportunity for growth, their primary focus is current income.
One top-rated fund is the Vanguard Wellesley Income Fund. Vanguard’s website describes the fund as an “income-oriented balanced fund [that] offers exposure to stocks and investment-grade bonds.”
Another excellent example of a stock fund is the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). The fund targets results consistent with the S&P 500 Dividend Aristocrats Index – companies that have increased dividends for 25+ consecutive years. Another dividend fund I have held is the Schwab US Dividend Equity ETF (SCHD), which has been highly rated for its combination of yield and quality.
Many income-generating funds hold bonds instead of stocks. Because bonds represent loans to companies, the interest paid is returned to fund holders as income. A good example of a fund is the iShares 0-5 Year Investment Grade Corporate Bond ETF (SLQD). The iShares website describes it as a fund that seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade corporate bonds with remaining maturities of less than five years.
Because the bonds they hold are of shorter duration, these types of funds can provide steady income with lower interest-rate risk than longer-term bond funds.
Neither growth nor income funds are likely to meet all your needs on their own. That’s why many investors focus on total return.
Investing for total return
Total return is probably the most popular approach to investing for retirement. Total return describes a way of investing that seeks to maximize the performance of an investment or a pool of investments through growth (capital gains), interest, dividends, and distributions over time. In other words, it’s not explicitly focused on growth or income, but seeks to achieve both.
Investing for total return is a mainstream strategy that can be easily implemented by investing in just a handful of low-cost mutual funds or ETFs that cover the growth, value, and income spectrums. Many implement this strategy by choosing index funds that track the market index represented by the fund. An excellent example is the Vanguard Total Stock Market Index Fund (VTI/VTSAX) or Fidelity’s ZERO Total Market Index Fund (FZROX), which charges no expense ratio.
For international exposure, funds like the iShares Edge MSCI Min Vol EAFE ETF (EFAV) or Vanguard Total International Stock Index Fund (VXUS/VTIAX) provide diversification beyond U.S. markets.
A good example of a domestic total market fund is the Vanguard 500 Index Fund (VOO/VFIAX). According to Vanguard, it “offers exposure to 500 of the largest U.S. companies, which span many different industries and account for about three-fourths of the U.S. stock market’s value.” As of late 2025, funds tracking the S&P 500 have delivered strong long-term returns, with the index up approximately 25% in 2024 and continuing to perform strongly into 2025.
This approach, also known as “passive index investing,” which I discussed earlier, continues to grow in popularity. It has been my strategy for many years, though my investments are now tilted more toward income and capital preservation in retirement. It is relatively easy to set up and requires the least amount of time and expertise to manage. If done right, a total-return portfolio will have moderate risk, which, in my opinion, is best for investors during the accumulation phase.
Consider the “simple” index-fund-based portfolio constructed by Tim Maurer and detailed in his excellent book, Simple Money: A No-Nonsense Guide to Personal Finance. If you take a look, you’ll see that it includes both growth and income stocks – that’s the “total return” part.
A possible shortcoming of this strategy is that you may not receive consistent income, especially early in retirement. Total return means you achieve your investment goals through both growth and income. That may mean that you cannot live off the revenue generated by the portfolio alone – you may need to liquidate shares to produce the income you need. Another challenge is that a volatile stock market may have a greater impact on your portfolio. That can be mitigated to some extent by holding some bonds or bond funds, though the traditional negative correlation between stocks and bonds doesn’t always hold. A significant advantage of this strategy is that it is simple and easy to manage – this is what gives the average investor their best opportunity for success.
Trend and momentum investing
This strategy is more tactical (short-term) than value investing, which is more long-term. It focuses on understanding and benefiting from market trends and the likelihood that they will persist. It requires more technical analysis and views market trends in light of both macro and microeconomics, as well as investor sentiment and emotion. As such, it can be riskier, but if the trends are rightly understood and play out as anticipated, it can produce higher returns in the short run.
I don’t do momentum trading, nor do I own any momentum-following investments. If you are interested in this strategy, check out the momentum strategy that Sound Mind Investing uses. You can also learn more about momentum trading strategies through various online resources from major brokerages like Fidelity Investments.
Which approach is best?
Once again, there is no “one size fits all” answer here. Most younger workers saving for retirement focus on growth or total return. Those who want to be more tactical and hands-on may tend toward trend-following and momentum-following. Generally speaking, I tend to favor the total return approach, using a well-diversified portfolio of mostly passively managed index funds. However, as I noted in the last article, I use actively managed funds when I think they make sense, mainly in my bond funds, which are sizable since I am retired.
Older folks who are nearing or in retirement may favor income-oriented investments, for apparent reasons. Growth becomes less of a concern – the need is to preserve capital and generate the income you need to live on in retirement. As a retiree myself, I can confirm that this shift in focus is real and appropriate. I have written additional articles about investing in retirement that cover withdrawal strategies and income generation in more detail.
Don’t obsess
I have presented a lot of material in this series on investing for retirement. I know it’s a lot to take in (it is for me too). But the reality is that I have only touched the surface in some areas. You may want to do more reading and study on the subject, but if there is one piece of advice I would give you, it would be this: Don’t obsess over having the absolute best investments – it’s more important to live below your means, save regularly, and start early. The power of compound returns and dollar-cost averaging over decades will have a far greater impact on your retirement security than trying to pick the perfect fund.
If you decide on a basic approach using a few proven funds, diversify, keep costs low, and mostly leave it alone, you’ll have a pretty good shot at having enough when you decide to retire. With zero-commission trading and ultra-low-cost index funds (including some with zero expense ratios), there has never been a better time to be a DIY investor.
The journey I’ve been on these past decades has taught me that consistency, discipline, and patience matter far more than brilliance in stock picking. Stay the course, rebalance periodically, and trust in the power of markets to reward patient, diversified investors over the long term.