I always preach that investors should hold a wide variety of stocks in a long-term diversified portfolio. Thus, focusing on the best funds — where you can hold said variety of stocks — is never more appropriate than in a retirement account, such as a rollover IRA or a 401k, where you want to lay off as much risk as you can while reaping the maximum benefit from long-term positions.
ETFs are a great vehicle for building a core set of investments around which to build your entire portfolio. I recently rebalanced my retirement accounts and went with some different choices that I think investors might benefit from.
First, I’ll note that one thing you should focus on is including a couple equal-weighted ETFs. The idea is that this spreads the risk of an index equally across all holdings, rather than concentrate it based on the stocks that happen to be the largest. I did this because I’ve noticed that in many cases, equal-weight funds are the best funds for the particular investing flavor, and they also performed better in the financial crisis than their market cap-weighted brethren.
This probably is because smaller-cap companies tend to grow more rapidly, so funds that weight them more heavily are more poised to benefit. But they also benefit from rebalancing — stocks that run up increase their weight in the fund, so when it comes time to rebalance, these stocks are essentially “sold high” to bring them back down to a truly equal weight.
So, without further ado, here are five of the best funds for your retirement portfolio: