Recent research from Vanguard revealed a surprising finding: Much of the money in IRAs – whether the result of transfers from company retirement plans or direct instructions – is in cash instruments rather than invested in stocks or bonds.

A sample of Vanguard accounts found that 28% of accounts funded by rollovers in 2022 still had cash in them 12 months later; 55% of accounts funded by direct deposits were on hold after a year. And this isn’t just a short-term phenomenon: The company found that rollovers that hold cash tend to stay that way for at least seven years. Vanguard found that what it calls “the sticky IRA cash trap” is particularly pronounced among younger savers, the very people most likely to benefit from long-term compounding.

It’s hard to generalize about investor motivation, but I suspect a combination of inertia, forgetfulness, and analysis paralysis explains the results. Like most large firms, Vanguard offers a range of options across major asset classes, and it’s possible that some investors simply don’t know where to start. Figuring out a sensible asset allocation and the specific investments to achieve it seems too difficult.

The goal of this article is to help you invest those assets wisely. I’ve created some minimalist portfolios of Vanguard funds, as well as portfolios that mix the company’s index and active funds, for different stages of life. The portfolios for retirees are all organized using the bucket portfolio model, while the portfolios for retirement savers are geared toward people still working who still have a long way to go before retirement. All benefit from Vanguard’s expense advantage: While the index fund portfolios are extremely inexpensive, even the portfolios that mix active and index funds have asset-weighted expense ratios that are much lower than similarly distributed portfolios with average expense ratios.

Note that these portfolios are geared toward tax-advantaged accounts like IRAs, so they are not designed for tax efficiency. I’ve also designed similar Vanguard portfolios for taxable accounts.

Vanguard IRA Portfolios for Retirees

These portfolios are geared toward retirees and all use a bucket structure, meaning the retiree uses expected portfolio withdrawals to determine how much cash, bonds and stocks to hold. For example, a retiree who plans to spend 4% annually from an IRA might hold two years of those planned withdrawals in cash (8% of the total portfolio), another five to eight years in high-quality bonds (20% to 32%), and the rest in stocks. Retirees who hold Roth IRAs earmarked for heirs (that is, that they don’t plan to actively spend) may want to have an even larger stock position.

Retirement portfolios with three funds for Vanguard investors

For investors who want to keep their portfolio simple and leave it at that, a portfolio with three index funds is the way to go: a U.S. market index fund or exchange-traded fund, an international equity fund or ETF, and a bond index fund/ETF. Add cash to meet your ongoing cash flow needs—especially useful in a year like 2022, when both stocks and bonds lost money at the same time—and you’re good to go.

Investors could also use a world market index such as Vanguard Total World Stock (available as index funds VTWAX or ETF VT) for their equity exposure. Currently, this fund is about 60% U.S. stocks and 40% non-U.S. stocks, but at various times this could result in a heavier weighting of non-U.S. stocks (including the associated currency fluctuations) than a U.S.-based retiree might want to hold.

Combined Index/Active Fund Fixed Income Portfolios for Vanguard Investors

These portfolios contain more holdings — eight to nine positions apiece, including cash — than the minimalist portfolios above. The main benefit of having more discrete holdings focused on specific asset classes is that it creates more opportunities for rebalancing. For example, in a record year for the stocks at the top of the U.S. market, the retiree might cut Vanguard Total Stock Market and leave the other holdings unchanged. In addition, all portfolios contain healthy positions in Vanguard Dividend Appreciation (VDADX/VIG), which tends to have lower volatility than Vanguard Total Stock Market.

Vanguard IRA Portfolios for Retirement Savers

Because they’re geared toward people who are still saving and investing for retirement, these portfolios don’t include a cash component like the bucket portfolios mentioned above. Of course, retirement savers should set aside some cash for emergencies, but they should generally keep those funds outside of an IRA for tax- and penalty-free access. All of these portfolios rely on Morningstar’s Lifetime Allocation Indexes for their asset class exposures.

Retirement savings portfolios with three funds for Vanguard investors

These portfolios use the same three total market funds as the (in retirement) portfolios above. However, a total global stock market index is particularly suitable for savers who want to further simplify the number of moving parts in a portfolio. Alternatively, an even lower-maintenance alternative would be one of the funds in Vanguard’s target-date series, Vanguard Target Retirement, which offers continuous rebalancing and risk reduction as you approach retirement. (More investors should use target-date funds in their IRAs!)

Combined active/index bond portfolios for Vanguard investors

Like the bucket portfolios above, these portfolios contain a mix of index and actively managed funds, but lean slightly more heavily toward active funds, which are highly rated by Morningstar’s analyst team. The aggressive portfolio contains only a small portion of a total bond market index fund, but the moderate and conservative portfolios increase their bond allocations. In addition, the conservative portfolio’s bond allocation contains more nuanced exposure to fixed income securities — namely, short-term bonds and Treasury inflation-protected bonds — than the moderate portfolio.