Ask a consultant: I am 61 with $ 900K in my 401 (K) and $ 800k ‘sitting on a money market’. How should I invest?
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I have $ 800,000 on a money market account because I don’t know what else to do with it. I hope I could put it in something that can produce around 4-5% growth. I also have $ 900,000 in my 401 (K) that is in minimal-risk accounts at Vanguard. I will be 62 later this year and cannot afford to lose or go back to what happened to me in the early 2000s.
– Kevin
I fully understand your worries here. You have worked hard to collect these savings and it is scary to think about risking them with something as unpredictable as the stock market. I think it is important to honor those worries and at the same time understand that there are also risks to be conservative. The final goal is to find a balance that works for you. (And if you need help selecting an asset spreading and investment plan that is suitable for your risk tolerance, consider working with a financial adviser.)
Firstly, it is important to give appropriate respect to the concerns you have about the stock market. Investing is about much more than figures. Investing is an emotional endeavor and the feelings you have about it are important.
Remember that consistency is one of the characteristics of a successful investment plan. By staying on your plan via the UPS and Downs instead of giving in to the frenzy of the day, one of the best ways to ensure that your money takes as long as you need it.
Although I would not encourage you to fully admit fear, it is important to acknowledge it. Rejecting or minimizing your worries would probably result in a strategy that does not really fit your investment personality, and in turn leads to emotional decisions that have a negative influence on your return. (And if you need help in assessing your tolerance at risk, consider working with a financial adviser.)
At the same time, it is important to acknowledge that a fall in the stock market is not the only risk that you are confronted with. There is also the risk of being too conservative.
The 4% rule – which essentially says that you can include 4% of your investment portfolio every year in retirement with little risk of not having money anymore – is based on a portfolio consisting of 50% shares and 50% bonds. Bill Bengen, who did the original research, also looked at more conservative portfolios with between 0% and 25% shares, and discovered that they would last so long.
In other words, being too conservative with your portfolio actually reduces your chances that it takes, as long as you need it.
Part of this is due to inflation. You need your money to grow to keep up with inflation and enable you to be able to afford the same costs that you have always had. If your goal is to ensure that you have enough money to maintain yourself for the rest of your life, the research says that an important allocation to shares is generally the right move. (And if you need help building an investment portfolio that is tailored to your risk tolerance, consider matching a financial adviser.)
If I work with customers, I try to emphasize that there is no ‘good’ answer here. There is no perfect solution that gives you the exact return for the exact risk level.
Instead, the goal is to land on something that is good enough. You want a portfolio that is not so conservative that it ensures that you fall behind your goals, and not so aggressively that you are exposed to more risk than you find that you find or are able to handle.
If you are looking for something that offers 4% -5% interest with little to no disadvantage, you can now get that from certain savings accounts, money market funds and deposit certificates (CDs). However, these rates will fluctuate, unless you lock a CD in the longer term, so you can earn more or less, depending on the general economic conditions. And this strategy would certainly fall due to the conservative end of things that you can hurt in the long term.
Alternatively, a diversified portfolio of 60% shares and 40% bonds can have a long -term expected return of 6% -6.5%, although of course that can vary greatly from year to year. I personally like to place my customers in a mix of index funds that follow the American and international stock markets, as well as the American and international bond markets.
If you need more help, don’t be afraid to ask. Investing can be scary and confusing, and sometimes the peace of mind and behavioral coaching of a good financial adviser can be worth the costs. (And if you need help finding a consultant, this tool can help you match with one.)
Just know that whatever you do, there will inevitably be ups and downs. And whatever you do, there will always be a different strategy that you could have chosen that would have worked better. If you can make peace with those things and stay consistent with your “good enough” plan, you will be in good condition.
If you need help building an investment plan that is suitable for your risk tolerance and goals, a financial adviser can help. Finding a financial adviser does not have to be difficult. The free tool of Smartasset corresponds to the breakthrough with financial advisers who serve your region, and you can interview your adviser competitions without costs to decide which is suitable for you. If you are ready to find a consultant who can help you achieve your financial goals, you start now.
Consider a few advisers before you are arranged on one. It is important to ensure that you find someone you trust to manage your money. Because you are considering your options, these are the questions you need to ask a consultant to make the right choice.
Keep an emergency fund to your hand in case you encounter unexpected costs. An emergency fund must be liquid – on an account that is not at risk of considerable fluctuation such as the stock market. The assessment is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn composite interest. Compare savings accounts from these banks.
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Matt Becker, CFP®, is a smartasset financial planning -columnist and answers questions from a reader about personal finances and tax subjects. Do you have a question you want to answer? E -Mail askanadvisor@smartasset.com and your question can be answered in a future column.
Keep in mind that Matt is not a participant in the Smartasset -Amp platform, not a SmartAsSET employee and he is compensated for this article.
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