When I retired in September 2022, my 401(k) was aggressively invested (90/10 split between stocks and bonds) and I lost about 30%. I let the 401(k) invest in mutual funds hoping it would recoup some of the losses. A year later, approximately 20% has been recouped. I don’t need to take RMDs for the next five years. My question is should I roll over the 401(k) funds into my traditional IRA account, which is 100% invested in stocks, and have an advisor manage the account? Or should I leave it in the mutual funds and rebalance the stock/bond ratio to be less aggressive, say 80/20 or 70/30?
– Bev
Congratulations on your recent retirement and what sounds like a stable financial position. Your question is simple but somewhat loaded. The answer depends a lot on what you want and need from your retirement account and what you would want from an advisor. Rather than focusing on returns, I would encourage you to think about how your investments fit within a broader context of your goals, attitudes and lifestyle preferences. (And if you need help making important retirement decisions, consider working with a financial advisor.)
Assess your situation
The reason I say that it sounds like you are in a good financial position is the implication that you are not withdrawing any money from your account. I assume that means that you have enough other income or savings to get by until the required minimum distributions (RMDs) begin. If so, then great that you can do that.
That said, let’s talk about your asset allocation – the mix of different investments that you hold. On the one hand, it’s incredibly aggressive for a retiree to have 90% of their investments in stocks. For the vast majority of retirees, that would be too aggressive. Normally, that money needs to be much more stable, so that you can withdraw money from it regularly. Since you suggested that you wouldn’t start withdrawing for another five years, that may not be the case for you.
Your investment horizon may be much longer, and you may not need the money you have to withdraw once you reach RMD age. If that’s the case, you may have the ability to invest aggressively in stocks, although I can’t say for sure based on the information you’ve shared. (And if you need help selecting an appropriate asset allocation, consider talking to a financial advisor.)
Consider your risk appetite
Of course, your attitude towards risk also plays a role. You made the right choice by waiting it out instead of panic selling after your account dropped in value. This suggests that you may have a high enough risk appetite to tolerate aggressive asset allocation. However, also consider how stressed you were.
But your asset allocation and risk tolerance shouldn’t be the only determining factors. You seem very focused on the investment aspect, but I think it’s important that you ask yourself what you expect from the money. (A financial advisor can help you answer this all-important question.)
Is there a purpose for which you are saving that money? Should it support your income? Do you want to leave it to heirs? Your goals should drive your investment decisions. Don’t invest in a vacuum.
Working with an advisor
I’m curious about how you converted your 401(k) to an IRA, invested it 100% in stocks, and had an advisor manage it all together. Those are all independent decisions that aren’t inherently connected.
Again, make sure you think carefully about your goals and what you want to achieve with your money. An advisor who is also a financial planner can help you with this. A financial planner can also help you understand how to invest given your goals and risk tolerance. I think that’s key. Financial planners can also manage your investments for you in a way that aligns with the plan you create together. (And if you’re ready to work with a financial advisor, this tool can help you find one.)
In short
Don’t make investment allocation decisions in a vacuum. Consider your personal situation, attitudes and goals. Then choose an allocation that is right for you. This should be the approach whether you choose to go it alone or with the help of an advisor.
Tips for finding a financial advisor
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Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your region, and you can have free introductory calls with your advisors to determine which ones are right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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Consider a few advisors before choosing one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid—in an account that isn’t subject to big swings like the stock market. The tradeoff is that the value of liquid assets can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
Brandon Renfro, CFP®, is a SmartAsset financial planning columnist who answers readers’ questions about personal finance and tax topics. Have a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not a participant in the SmartAsset AMP platform, nor an employee of SmartAsset, and has received compensation for this article. Some reader-submitted questions have been edited for clarity or brevity.
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The post Ask an Advisor: I’m 5 Years Out of RMDs, But Recently Lost 30% of My 401(k). Should I Stay Aggressive to Recoup My Losses or Rebalance? first appeared on SmartReads by SmartAsset.
