Last week I wrote about a Vanguard study that highlighted that IRA investors frequently fund their accounts and leave the money in cash.

But this may not be just a Vanguard problem—and kudos to the company for talking about it. I suspect most investment platforms are seeing a similar phenomenon: Investors transfer assets out of a company pension plan or rush to fund an IRA before the deadline. Once they’re past that stage of the transaction, they don’t take the next steps to invest the money, perhaps because they’re overwhelmed by the choices and unsure how to allocate the assets.

This is where my model portfolios can help. They are designed to provide guidance on what a sensible asset allocation might look like for investors at different stages of life. (Of course, a target-date fund can also be a solid choice that requires even less effort, and Fidelity offers some excellent ones.) I have created some minimalist portfolios consisting of three Fidelity index funds with different allocations 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.

Note that these portfolios are intended for tax-advantaged accounts such as IRAs, so they are not designed for tax efficiency. I have developed similar Fidelity portfolios for taxable accounts; these portfolios are designed to permanently minimize the tax burden.

Fidelity IRA portfolios with three funds for retirees

These portfolios are geared toward retirees and all use Fidelity index funds and a bucket structure. This means the retiree uses expected portfolio withdrawals to determine how much money they want to keep in cash, bonds and stocks. For example, a retiree who plans to spend 4% annually from an IRA might keep 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 for inheritance (that is, IRAs they don’t plan to actively spend money from) may want to keep an even larger stock position.

Like my Vanguard three-fund portfolios, These portfolios all include a U.S. market index fund, an international stock index fund, and a bond index fund. Each of the portfolios also includes a cash fund to meet ongoing cash flow needs. For simplicity, some investment types I like to see in retirement portfolios are missing, but the basics are covered.

Aggressive

Expected retirement time horizon: 20-25 years

Expected annual portfolio withdrawal: 4%

Risk tolerance/capacity: High

Target mix of stocks, bonds and cash: 60/32/8

Bucket 1

Bucket 2

• 32%: Fidelity US Bond Index FXNAX

Bucket 3

• 40%: Fidelity Total Market Index FSKAX
• 20%: Fidelity Total International Index FTIHX

Moderate

Expected retirement time horizon: 15–25 years

Expected annual portfolio withdrawal: 5%

Risk tolerance/capacity: Moderate

Target mix of stocks, bonds and cash: 50/40/10

Bucket 1

Bucket 2

• 40%: Fidelity US Bond Index

Bucket 3

• 35%: Fidelity Total Market Index
• 15%: Fidelity Total International Index

Conservative

Expected period until retirement: Less than 15 years

Expected annual portfolio withdrawal: 6%

Risk tolerance/capacity: Low

Target mix of stocks, bonds and cash: 40/48/12

Bucket 1

Bucket 2

• 48%: Fidelity US Bond Index

Bucket 3

• 28%: Fidelity Total Market Index
• 12%: Fidelity Total International Index

Three-Fund Retirement Fidelity IRA Portfolios for Retirement Savers

These portfolios are designed for people who are still working and saving for retirement. They vary in their equity allocation and therefore their risk level. Unlike the portfolios above, they do not contain cash because it is assumed that the investor who is still working is not yet actively spending their assets. Such individuals should hold cash as an emergency buffer, but they should keep it outside of an IRA to avoid the taxes and penalties that apply to early IRA withdrawals.

The aggressive portfolio is best suited for younger investors who have many years left until retirement, while the conservative portfolio is geared towards people still working who plan to retire in the next few years. The moderate portfolio falls in between. Allocations are loosely based on Morningstar’s Lifetime Allocation Indexes.

When choosing an allocation composition, investors should consider their own risk tolerance and their proximity to retirement. Young investors who are risk averse and have not yet experienced a major decline in stock prices may prefer the moderate portfolio. Older investors who know they can handle some volatility and can rely on their pension for most of their living expenses might make sense using the moderate or even aggressive portfolio, even if retirement is imminent.

Aggressive

Expected time horizon until retirement: 35–40 years

Risk tolerance/capacity: High

Target stock/bond mix: 95/5

• 55%: Fidelity Total Market Index
• 40%: Fidelity Total International Index
• 5%: Fidelity US Bond Index

Moderate

Expected time horizon until retirement: 20–25 years

Risk tolerance/capacity: Moderate

Target stock/bond mix: 80/20

• 48%: Fidelity Total Market Index
• 32%: Fidelity Total International Index
• 20%: Fidelity US Bond Index

Conservative

Expected time horizon until retirement: 2–5 years

Risk tolerance/capacity: Low

Target stock/bond mix: 50/50

• 35%: Fidelity Total Market Index
• 15%: Fidelity Total International Index
• 50%: Fidelity US Bond Index