How to Allocate Your Roth IRA and 401k: A Simple Portfolio for Hourly Workers

Once you have opened a Roth IRA or 401k, the next question is always the same: what do I actually put the money into?

Most guides punt on this. They tell you to “diversify” or “consult a financial advisor” without giving you anything concrete to work with. This article is different. I am going to tell you exactly how I think about portfolio allocation, what I would recommend to someone just starting out, and why I reject the conventional wisdom on bonds and target-date funds.

My personal allocation is 100 percent Bitcoin and Bitcoin-related assets. I am not recommending that to you – it is my choice based on my conviction and my situation. What I am recommending is the framework below.

Why I Reject Target-Date Funds and Bonds

The standard advice for retirement investing is some version of this: hold stocks when you are young, gradually shift into bonds as you get older, and use a target-date fund to do it automatically.

I think this advice is wrong for most people today, and here is why.

Bonds are loans to governments and corporations. When you buy a bond, you are lending money and receiving interest payments in return. The problem is that bonds are denominated in dollars. And the dollar loses purchasing power every year by design – the government expands the money supply to manage its debt, and that expansion erodes the real value of every dollar-denominated asset you hold, including bonds.

Target-date funds automate the shift from stocks to bonds as you age. At 30, you might be 90 percent stocks. At 60, you might be 60 percent bonds. The logic is that bonds are “safer” – they are less volatile than stocks. But safety measured in nominal dollars is not the same as safety measured in purchasing power. A bond that returns 3 percent annually while real inflation runs at 5 percent is losing you money in real terms every year.

I want assets that hold real value. Not dollar promises. The allocation I recommend below reflects that.

The Framework: Four Equal Buckets

Here is the allocation I would recommend to someone building a long-term portfolio from scratch:

25% Large Cap Stocks

The biggest, most established companies in the US economy. An S&P 500 index fund gives you this – 500 of the largest publicly traded US companies, weighted by size. These are companies with durable businesses, pricing power, and long track records. They are the bedrock of a stock portfolio.

At Fidelity: FXAIX – Fidelity 500 Index Fund, expense ratio 0.015 percent.

25% Mid Cap Stocks

Medium-sized companies – bigger than startups but not yet household names. Mid cap stocks have historically outperformed large caps over long periods because they have more room to grow. They carry more volatility than large caps but over a 20 or 30-year horizon that volatility smooths out and the higher growth potential shows up in returns.

At Fidelity: FSMDX – Fidelity Mid Cap Index Fund, expense ratio 0.025 percent.

25% Small Cap Stocks

Smaller companies with significant growth potential. Small cap stocks are the most volatile of the three equity buckets but have the highest long-term return potential. They represent the early stages of businesses that may become the large caps of tomorrow. Equal weighting here alongside large and mid cap means you own the full breadth of the US equity market rather than being concentrated in the largest companies.

At Fidelity: FSSNX – Fidelity Small Cap Index Fund, expense ratio 0.025 percent.

25% Hard Assets

This is where I break from conventional allocation advice most sharply. Instead of bonds, I recommend hard assets – things with real intrinsic value that hold purchasing power as the money supply expands.

The two options I think belong in this bucket are Bitcoin and gold. They serve the same purpose – protection against currency debasement – but they have different characteristics. Bitcoin has a fixed supply of 21 million coins enforced by code, is easily divisible, and is the hardest money ever created. Gold has a 5,000-year track record as a store of value and is more familiar to older investors.

I personally hold Bitcoin and not gold. I think Bitcoin is superior to gold in almost every measurable way for a working person today. But I recognize that gold is the more conservative choice within this bucket and has a much longer track record. Both are legitimate.

How to Adjust for Age and Time Horizon

The framework above is a starting point, not a rigid formula. Adjust it based on where you are in life.

Young investors with a long time horizon – 20 to 40 years

Be more aggressive. Volatility is your friend when you have decades for it to smooth out. Consider skewing toward small and mid cap, which have higher long-term return potential. Within the hard assets bucket, younger investors can lean more heavily toward Bitcoin – the volatility is real but so is the long-term upside for a fixed-supply asset in an inflationary world.

Mid-career investors – 10 to 20 years to retirement

The framework as written works well here. Equal weighting across all four buckets gives you growth from equities and purchasing power protection from hard assets without the bond drag. Reassess every few years as your timeline shortens.

Investors approaching retirement – under 10 years

Start thinking about what you will actually need in retirement and when. If you need the money in 5 years, some of it should be in lower-volatility assets. Within the hard assets bucket, older investors may prefer shifting more toward gold and less toward Bitcoin – gold is more established, less volatile, and a more familiar store of value for someone who needs predictability in the near term.

The one thing I would not do at any age is load up on bonds as the primary source of stability. If you want lower volatility as you approach retirement, consider shifting a portion to short-term Treasury bills or money market funds rather than long-term bonds. Short duration limits your exposure to interest rate risk and inflation erosion.

My Personal Allocation – and Why I Would Not Recommend It

I am 70 percent Bitcoin and Bitcoin ETFs, 30 percent Bitcoin treasury companies. I am all in on Bitcoin because it is what I have studied, what I believe in, and what I am willing to hold through any volatility.

I would not recommend this to most people. Here is why.

My conviction in Bitcoin comes from hundreds of hours of reading – monetary history, Austrian economics, the mechanics of Proof of Work, the supply cap, the halving schedule, the institutional adoption curve. That conviction is what lets me hold through 50 and 80 percent drawdowns without panicking. If you do not have that conviction built from the same foundation of understanding, you will sell at the wrong time. Conviction requires understanding. Understanding requires time and work.

The framework I outlined above is what I would tell someone who wants to build real wealth without going all in on any single asset. It gives you broad equity exposure, purchasing power protection through hard assets, and a portfolio you can hold through market cycles without needing extreme conviction in any one thing.

Once you understand Bitcoin at a deeper level – what it actually is, why the fixed supply matters, how it fits into the monetary system – you can decide for yourself how much weight to give it in your allocation. That is a personal decision that requires personal study.

What to Actually Buy at Each Major Brokerage

At Fidelity

Large cap: FXAIX. Mid cap: FSMDX. Small cap: FSSNX. Hard assets: FBTC for Bitcoin exposure inside a retirement account, or physical gold ETF like GLDM for gold exposure.

At Vanguard

Large cap: VOO or VFIAX. Mid cap: VO or VIMAX. Small cap: VB or VSMAX. Hard assets: IBIT or FBTC are available in brokerage accounts; gold via IAU or GLDM.

At Schwab

Large cap: SCHX or SWTSX. Mid cap: SCHM. Small cap: SCHA. Hard assets: same Bitcoin ETF and gold ETF options as above through the brokerage account.

Inside a 401k

Your options are limited to what your plan offers. Look for the lowest expense ratio S&P 500 or total market fund for your large cap bucket. For mid and small cap, most plans have at least one option in each category – look for index funds over actively managed funds and check the expense ratios. Hard assets inside a 401k depend on your plan – some plans with self-directed brokerage windows allow Bitcoin ETFs. Check with your plan administrator.

The Simplest Version of This

If four funds feels like too much to manage, here is the simplest version that still captures the spirit of the framework:

Put 75 percent in a total stock market index fund – FZROX at Fidelity, VTI at Vanguard, SWTSX at Schwab. This single fund gives you large, mid, and small cap exposure all at once. Put 25 percent in your hard assets choice – Bitcoin, Bitcoin ETF, gold, or a split between them.

Two funds. Total market plus hard assets. Rebalance once a year. That is a portfolio that will serve most hourly workers well over a 20 to 30-year horizon without requiring you to monitor it constantly or make complex decisions.

Start there. Add complexity only when you understand why you are adding it.