If you are coming into the market now and building a retirement portfolio, the state of the market and the economy might feel a bit daunting. The bear market has been harsh, and with the expectation of a continuing economic slowdown, or recession, on the horizon, the outlook may not improve any time soon.

But this type of market, as uncertain as it is, should not alter any long-term strategy, particularly when it comes to retirement. The market has gone through multiple bear markets, and they have typically been followed by longer, more robust bull markets.

That said, if I were building a retirement portfolio from scratch right now with $50,000, I'd be cautious, balanced, and optimistic.


Being cautious means being prepared for the market fluctuations that occur over time. If you are invested primarily in one type of stock -- say, all growth stocks or technology stocks or small caps -- that volatility is going to be more pronounced, and your portfolio will be subject to wild swings. That's why portfolio diversification is so important.

I would diversify my portfolio in two ways -- through exchange-traded funds (ETFs), which are baskets of stocks that track an index, and by having those ETFs diversified by investment style or strategy.

^SPX Chart

^SPX data by YCharts

The core of the portfolio would be in an S&P 500 ETF, tracking the largest 500 stocks in the U.S. This has been the major benchmark by which stocks have been measured, and over the last 40 years, it has returned 9% per year on an annualized basis through Sept. 20. I'd put about 30% of my $50,000, or $15,000, in an S&P 500 ETF. There are many good options, but the granddaddy of them all is the SPDR S&P 500 ETF Trust, which is the oldest ETF on the market.

Then I would put the rest in two ETFs that perform differently in different market cycles, to buoy the portfolio in difficult markets while still driving growth in strong markets. To determine which ETFs would best achieve this goal, I'd use the past 20 years as a guide.


If you look at the 20 years from 2000 to 2020, you had two very different market cycles. From 2000 through 2009 was a rocky period, filled with several bear markets, from the bursting of the dot-com bubble through the Great Recession. Then, from 2010 through the end of 2019, the market experienced the longest bull market and the longest period of economic expansion in U.S. history.

^SPX Chart

^SPX data by YCharts

From 2000 through 2009, it was a bad time for growth stocks and large caps, as the S&P 500 had an annualized return of -2.7% over that stretch while the Nasdaq had an average annual return of -5.7. The Nasdaq 100, which is a bellwether for growth stocks, posted an annual return of -6.7% in this period.

On the flip side, value stocks and small and mid caps fare much better in this 10-year stretch. The S&P 400, a mid-cap index, had an annualized return of 5%, while the Russell 2000 returned 2.2% per year. Looking at the value side of things, the S&P 400 Value Index returned 6.8% annually, while the Russell 2000 Value Index returned 6% annually.

So, I'd split another $20,000 in two different ETFs that would better navigate down markets. One would be in a mid-cap value ETF, to access to the range of midsized companies with value characteristics, while the other would be in a small-cap ETF to invest in a range of smaller companies.

A good option among mid-cap value ETFs is the Vanguard S&P Mid-Cap 400 Value ETF, while a good small-cap fund is the iShares Russell 2000 ETF.


The rest of the portfolio would reflect my long-term optimism that growth stocks, in particular the technology sector, will continue to drive growth in the market.

As mentioned, growth stocks and large caps struggled in the 2000s, but in the 2010s, it was a vastly different story. The S&P 500 returned 11.2% per year from 2010 through 2019, while the Nasdaq Composite posted a 14.7% annual return, and the Nasdaq 100 posted an annualized return of 16.7% over that stretch. The Russell 2000 returned a solid 10.3%, while the S&P Mid-Cap Value index had an average annual return of 10% in the decade.

With a long time horizon, I'd invest 30% of the $50,000, or $15,000, in a technology-oriented ETF like the Invesco QQQ Trust (QQQ -0.26%). This ETF tracks the Nasdaq 100 and has the best long-term performance over the past 40 years, even with its negative performance in the 2000s. It, of course, is a concentrated index that includes the largest, fastest-growing technology stocks. 

This is just one person's view, but a portfolio constructed with a focus on diversification, balance, and growth will go a long way toward helping you reach your long term goals.