How I’d Invest $50,000 for Retirement If I Had To Start From Scratch

One of the best things you can do when investing for retirement is start. There are thousands of companies and exchange-traded funds (ETFs) you can invest in, but for most people, they can accomplish (and potentially surpass) their financial goals with only a handful of ETFs that cover a wide range of companies, industries, and locations.

Here’s how I’d invest $50,000 for retirement if I had to start from scratch.

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Always include the S&P 500

I’m a firm believer that any solid retirement portfolio should include an S&P 500 index fund. Since the S&P 500 index tracks the largest 500 U.S. companies, you know you’re investing in blue chip stocks and companies with large market caps, which are typically more stable than younger or smaller companies. The S&P 500 is also a good way to achieve instant diversification within your portfolio. The companies cover technology, healthcare, financials, energy, utilities, and any other industry you can imagine.

Although the S&P 500 is an index, different financial companies put together their own respective S&P 500 index funds. The companies within these index funds won’t vary much, but there will be differences between them, such as the expense ratio charged. To save on fees, I would go with a very low-cost fund like the Vanguard S&P 500 ETF (NYSEMKT: VOO), which has an expense ratio of 0.03% (meaning you’ll be charged $0.30 per $1,000 you have invested).

Take a little risk for high growth potential

One of the downsides to becoming a large company is that you generally limit your chance for exponential growth. Stability within your portfolio is great, but you should also consider adding investments that have a chance for high growth. I would start with a small-cap index fund like the Vanguard Small-Cap ETF (NYSEMKT: VB), which consists of 1,548 small-cap stocks. Since small-cap companies are riskier, being exposed to that many companies can help hedge some risks. These funds also rely on the small-cap sector as a whole instead of a handful of companies.

Mid-cap stocks are the sweet spot between small-cap and large-cap stocks. The companies are generally large enough to have more financial security, yet small enough to still have room for hypergrowth. You don’t get as much stability as you would with larger companies, but you also don’t have as much risk as you would with smaller companies. I would go with the Vanguard Mid-Cap ETF (NYSEMKT: VO) because it’s cheap and has produced good returns since its inception.

Don’t just focus on U.S. companies

To achieve true diversification within your portfolio, you should focus on more than just company size and industry. If you only invest in U.S. companies, you’re limiting yourself and missing out on quality investments around the world, so consider investing in companies outside the U.S.

A good international index fund like the Vanguard International Stock ETF (NASDAQ: VXUS) is a good option because it gives you exposure to companies in Europe, the Pacific, North America (not U.S.), the Middle East, and emerging markets. Consisting of household names like Samsung and Toyota, you’ll get some of the stability of large companies while also having a chance for high growth from companies within emerging markets.

Break the $50,000 down into smaller investments

One of the better investment strategies is dollar-cost averaging, which involves making consistent investments at set intervals with no regard for the stock’s price at the time. Outside of getting investors used to being consistent with their investments, dollar-cost averaging helps prevent trying to time the market (which is all but impossible to do consistently long-term).

Instead of investing the whole $50,000 at once, I would break it down to 10 $5,000 monthly investments. Each month, I would divide the $5,000 between the four mentioned ETFs as the following:

Vanguard S&P 500 (60%): $3,000
Vanguard Total International Stock (20%): $1,000
Vanguard Mid-Cap (10%): $500
Vanguard Small-Cap (10%): $500

These investments cover all my bases: stability, growth potential, and diversification. As you get older and approach retirement, you will want to shift the percentages a bit to decrease your risk and focus on more stability, but if you’re starting from scratch and have time on your side, this should put your portfolio in a good position.

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Stefon Walters has positions in Vanguard Mid-Cap ETF, Vanguard S&P 500 ETF, Vanguard Small-Cap ETF, and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Vanguard Mid-Cap ETF, Vanguard S&P 500 ETF, Vanguard Small-Cap ETF, and Vanguard Total International Stock ETF. The Motley Fool has a disclosure policy.

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