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The S&P 500, also popularly called “the market,” is a benchmark that tracks the performance of around 500 of the U.S.’s largest publicly traded companies. The S&P 500 is inherently well-diversified and highly efficient. With lifetime returns averaging 10%, low-cost index funds or exchange-traded funds (ETFs) that track the S&P 500 provide retirement-focused investors a solid opportunity for at least part of their portfolio.
Risk, timeline, and goals are the driving forces behind investor portfolios. The general rule is that investors take on less risk as they approach retirement. Younger investors, with time on their side, can generally take on more risk and have a larger portion of their portfolios allocated to stocks, like S&P 500 index funds, because they have plenty of time to recover from market fluctuations.
This guide offers age-specific investing advice from financial advisors for young investors, mid-career professionals, and pre-retirees using the S&P 500 as a core retirement holding.
Key Takeaways
- The S&P 500 is a solid choice for core retirement holdings, but reallocation is key as investors get closer to retirement.
- Younger investors can benefit from a high stock allocation because they have longer timelines to recover from market downturns.
- Mid-career investors should gradually rebalance their portfolios toward more conservative investments as their careers progress.
- Pre-retirees may prioritize capital preservation and income generation, but these portfolios should also be well-diversified to prevent overexposure to any asset.
- Investors can use cost-effective ETFs and index funds to gain exposure to the S&P 500 in retirement accounts.
Younger Investors (20s–40s)
High Stock Allocation
The S&P 500 can propel retirement savings in the early years for young investors. With decades until retirement, young investors can weather the stock market’s highs and lows with plenty of time for recovery.
A portfolio for a young investor should have a high equity allocation. Investors in their 20s should strive for as much as 90% of their portfolio in stocks. Even workers in their 40s still have plenty of runway before they take off, so an 80% stock allocation is appropriate for many of their investment portfolios.
Long-Term Focus
Prince Dykes, founder and chief investment officer at Royal Financial Investment Group, said that he finds his younger clients often favor low-cost, passive investing (e.g., ETFs like VOO or SPY) and are “more comfortable with technology-driven investment platforms.”
The buy-and-hold strategy has a proven success record in the long term. Staying invested through all market cycles is key to success. Trying to “time the market” is usually counterproductive.
Dollar-Cost Averaging
Dollar-cost averaging (DCA) involves regularly investing the same amount of money into a security. It is an effective way for investors to remove the pressure to time the market, lower their average cost per share, and reduce the impact of market fluctuations in their portfolios. DCA into funds with a solid record, like S&P 500 funds, helps build discipline and reduce the emotional impact of market swings.
Embracing Market Ups and Downs
Investing is a rollercoaster, and understanding how to hold on when the market dips is crucial for success. Still, it’s shocking to see your portfolio balance plummet, but that’s when investors need to go back to the basics and remember their risk tolerance, timeline, and goals. If your portfolio aligns with those factors, you should stay the course or even buy the dip, which can lower your cost basis over time.
Martin A. Smith, founder and president of Wealthcare Financial Group, reminded investors, “The key to avoiding panic selling is rooted in strategy, not sentiment. When the market pulls back, it may simply be an opportunity to rebalance, not retreat.”
Mid-Career Investors (40s–50s)
Continue Steady Contributions
Despite being in their highest earning years, mid-career investors usually feel their belts tighten when sandwiched between the costs of raising their own children and caring for aging parents. Dropping investment contributions seems easy when stretching the household budget, but continuing steady contributions is critical to long-term success and to help reach your retirement goals.
Tip
For investors with matching contributions, continuing to invest up to the matching employer contribution level doubles the impact of their savings.
Gradual Reallocations
By the time investors enter their late 40s and early 50s, they’ve probably started to think about retirement more concretely than in their early investor years. As that time draws closer, investors should gradually shift their asset allocation away from stocks and into assets focused on capital preservation and income.
In excellent years for the market, like 2024, when the S&P 500 returned 23%, it may seem ill-advised to reallocate away from stocks. However, as you get closer to retirement, you should be gradually smoothing out volatility in your portfolios.
Rule of 100
The Rule of 100 is a retirement savings guideline where you subtract your age from 100 to determine your ideal stock allocation. This rule is a helpful starting point, but many advisors consider it overly simplistic. As Martin put it, “A portfolio built solely around one’s age may leave investors overexposed just when they need stability the most.”
Further, Martin added, “Economic disruptions—like 9/11 or the 2008 financial crisis—don’t respect retirement dates.” Appropriate stock allocation is far more dependent on an investor’s age, timeline, and goals than on a magic number.
Tip
Some experts advise using 110 minus your age or even 120 or 125 minus your age instead of the standard Rule of 100 formula. However, even that is just a guideline.
Rebalancing
Rebalancing is the part of investing that many investors skip. When markets are popping off, few investors think that signals a great time to offload some top performers. However, rebalancing in mid-career years is especially important as market gains can distort intended asset mixes.
Thomas Kopelman, co-founder and financial planner at AllStreet Wealth, warned, “The biggest mistake is simply not rebalancing… If you did this from 2008 till now, you would be very overweight in large-cap growth and very underweight in international bonds if you are older or have a lower risk tolerance.”
Pre-Retirees (50s and Older)
Lower Risk Tolerance
The closer you are to retirement, the more protecting what you’ve earned becomes your top priority. Focusing on capital preservation doesn’t mean stuffing $100 bills in your mattress, and it doesn’t mean ditching stocks entirely. Equity investments may still have a place in your portfolio as you get closer to clocking out for the last time.
Martin said, “A conservative portfolio can certainly include S&P 500 holdings to boost return potential, but it should be part of a wider asset allocation framework designed to reduce volatility and safeguard capital as retirement approaches.”
Diversification
Diversification across asset classes like bonds, stocks, and government securities becomes increasingly vital at pre-retirement, as most people reduce equity exposure and add income-producing or capital preservation assets. Even within asset classes, it’s a good idea to look closer at where your money is going, especially in equity investments.
S&P 500 funds or ETFs are inherently diversified. However, Thomas cautions that overexposure to the S&P 500 alone can be risky, especially for pre-retirees: “Right now, Mag Seven stocks (Magnificent Seven or the seven largest and most influential tech-oriented companies) are over 35% of the Index. You may want to be more diversified than that, especially as you get older and near retirement.”
Considering Retirement Needs
Prince noted that the S&P 500 is still appropriate for some investors with shorter time horizons. However, its allocation should shrink as retirement approaches: “Using a blended approach that shifts as the target date approaches emphasizes stability while maintaining some growth potential.”
By aligning portfolios with evolving income needs, considering expenses like health care, travel, or housing, investors can better support their lifestyle while preserving their nest egg.
How Much Should I Have Invested for Retirement by Age?
Experts, like those at Fidelity, offer savings benchmarks by age rather than dollar amounts. They suggest saving at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
How Do I Invest in the S&P 500 in a Retirement Account?
Most retirement accounts (401(k)s, IRAs, and brokerage accounts) offer S&P 500 index funds as a holding option. If you’re having trouble finding one in the available offerings, you can search by ticker symbol.
Is the S&P 500 a Good Investment for Retirees?
The S&P 500 is a good investment for retirees if it aligns with their current risk tolerance, timeline, and goals. It offers growth potential, but retirees should anchor that growth and associated risk with bonds or other income-producing assets.
What Is the Average Return of the S&P 500?
The S&P 500’s average return is around 10% annually before inflation. After inflation, its return is around 6-7%. Past performance does not guarantee future results, but the S&P 500 has a historical success record.
The Bottom Line
Whatever your age, the S&P 500 can be a powerful foundation for a retirement portfolio covering large-cap exposure in one diversified swoop. Young investors can lean into the potential growth that equity investments offer, mid-career savers should gradually reallocate their portfolios to match their risk, and pre-retirees should prioritize capital preservation and income while leaving room for some growth.
Your goals, timeline, and risk tolerance will shift with each life stage. Allow them to drive your investment vehicles without fear or hype over market returns.
