I’m 61 With $900k in My 401(k) and $800K Sitting in a Money Market Account. How Should I Invest?

I have $800,000 sitting in a money market account because I don’t know what else to do with it. My hope was that I could put it in something that can yield around 4-5% growth. I also have $900,000 in my 401(k) that is sitting in minimal-risk accounts with Vanguard. I will be turning 62 years old later this year and cannot afford to lose or go back to what happened to me in the early 2000s.

-Kevin

I completely understand your concerns here Kevin. You’ve worked hard to accumulate these savings and it’s scary to think about risking them with something as unpredictable as the stock market. I think it’s important to honor those concerns while also understanding that there are risks to being too conservative as well. The end goal is to find a balance that works for you. (And if you need help selecting an asset allocation and investment plan appropriate for your risk tolerance, consider working with a financial advisor.)

Respect Your Discomfort

First, it’s important to give appropriate respect to the concerns you have about the stock market. Investing is about much more than numbers. Investing is an emotional endeavor and the feelings you have about it matters.

Remember, consistency is one of the hallmarks of a successful investment plan. Sticking to your plan through the ups and downs rather than giving in to the frenzy of the day is one of the best ways to ensure that your money lasts as long as you need it to.

While I wouldn’t encourage you to completely give in to fear, it’s important to acknowledge it. Dismissing or minimizing your concerns would likely result in a strategy that doesn’t truly fit your investment personality, and in turn, lead to emotional decisions that negatively impact your returns. (And if you need help assessing your tolerance for risk, consider working with a financial advisor.)

The Flip Side of Risk

At the same time, it’s important to recognize that a stock market decline isn’t the only risk you face. There is also the risk of being too conservative.

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The 4% rule – which essentially says that you can withdraw 4% of your investment portfolio each year in retirement with little risk of running out of money – is based on a portfolio consisting of 50% stocks and 50% bonds. Bill Bengen, who did the original research, actually looked at more conservative portfolios with between 0% and 25% stocks, as well, and found that they were less likely to last as long.

In other words, being too conservative with your portfolio actually reduces your odds of it lasting as long as you need it to.

Part of this is due to inflation. You need your money to grow just to keep up with inflation and allow you to continue being able to afford the same expenses you’ve always had. If your goal is to ensure that you’ll have enough money to support yourself for the rest of your life, the research says that a significant allocation to equities is generally the right move. (And if you need help building an investment portfolio aligned with your risk tolerance, consider matching with a financial advisor.)

Finding the Right Balance

When I work with clients, I try to stress that there is no “right” answer here. There is no perfect solution that gets you the exact return for the exact level of risk.

Instead, the goal is to land on something that’s good enough. You want a portfolio that isn’t so conservative that it causes you to fall behind on your goals, and not so aggressive that you’re exposed to more risk than you are comfortable with or able to handle.

If you’re looking for something that provides 4%-5% interest with little to no downside, you can get that right now from certain savings accounts, money market funds and certificates of deposit (CDs). Those rates will fluctuate though, unless you lock in a longer-term CD, so you may earn more or less depending on overall economic conditions. And this strategy would certainly fall on the conservative end of things, which could end up hurting you in the long run.

As an alternative, a diversified portfolio of 60% stocks and 40% bonds would likely have a long-term expected return of 6%-6.5%, though that of course can vary widely from year to year. I personally like to put my clients in a mix of index funds that track the U.S. and international stock markets, as well as U.S. 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 provided by a good financial advisor can be well worth the cost. (And if you need help finding an advisor, this tool can help you match with one.)

Bottom Line

Just know that whatever you do, there will inevitably be ups and downs. And whatever you do, there will always be a different strategy you could have chosen that would have worked out better. If you can make peace with those things and stay consistent with your “good enough” plan, you’ll be in good shape.

Tips for Finding a Financial Advisor

• If you need help building an investment plan suited to your risk tolerance and goals, a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Consider a few advisors before settling on 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.

Matt Becker, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email [email protected] and your question may be answered in a future column.

Please note that Matt is not a participant in the SmartAdvisor Match platform, and he has been compensated for this article.

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