I'm just starting retirement and have a lump sum in IRA Money Market funds. What is the best way to put these funds back into bonds or equities?

Asked by kim

5 Answers

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Answered by Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC
Hi Kim,

You've come to the right person with this one. Are you looking for cash-flow or growth? Everyone's situation is different. Here are some insights from what others have learned from us:

We have been using a bond exchange-traded fund (ETF) strategy since 2008 that has a Compound Annual Growth Rate (CAGR) of ~15%. All bonds are not alike and of course, past performance does not guarantee future returns.

On Equities, you could get a higher CAGR. The better question is, how much of those Money Market funds are you able to redeploy? Meaning, after taking out some for living expenses, taxes, etc. (if any), what is left over for investing? Next, will you be investing this yourself or would you prefer to have an Investment Manager (IM) do it for you? In either case, always do what is in your best interest.

Now for some specifics:
1) What is your number? How much ROI do you need in order to maintain your lifestyle needs without running low/out of funds?
2) What is your MARR (Minimum Acceptable Rate of Return)?
3) If your are using the 4% rule and/or just need a market return, the SPY (an ETF) may work for you. Keep in mind that with this one your money will double in about 15 years. Most any competent IM could do this three times over in a 15-year period.

Feel free to give us a call to discuss your situation in greater detail. No obligation.

It's not what you make; it's what you keep that determines your lifestyle. | 05.23.16 @ 23:28
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 20:47
Answered by David Meyers, Financial Adviser in Palo Alto, CA
First off, understand that any answer here is going to be incomplete -- you haven't provided nearly enough information for a full answer, and I strongly recommend working with a financial planner who has a fiduciary relationship with you (i.e. who must put your interest first, not necessarily selling you products first).

That said, the issues revolve around your *goals* and *needs* for that money. Are you planning on living off that money? Will it provide supplemental income (above and beyond your needs, which are met by other resources)? Do you have other resources (Social Security, pension, etc.)?

A few things to note:
1) Historically, a 50/50 stock/bond portfolio has returned between 5.25 and 5.75% above inflation *over long periods of time* (Vanguard did a great study on this targeting periods of economic expansion and downturns). I am not recommending that portfolio - only presenting it to give you an idea regarding reasonable expectations.

2) Risk and reward go hand-in-hand. It's not a perfectly direct relationship, but it's not possible to get huge returns without taking huge risks - anything which can make you stupendously rich can also wipe out your investment. Don't believe anyone who suggests otherwise.

3) Longevity is a major issue if you're considering pulling cash-flows out of the portfolio -- if you start with, say, a draw of 4% of the initial value of the portfolio and increase that draw with inflation as you go, historically, such a plan has "worked" over long periods of time very well. However, there were also historical times where it failed -- mainly in time periods where markets went down early on in the life of the process. If you want to guarantee that the portfolio will last until you die, the only ways to do that are either extremely small draws -- or partial annuitization.

So, again, it comes down to the same question -- what's the money for?

If you already know how you want it invested (i.e. you've already selected a suitable target allocation and have considered time horizons, risk tolerance, draw-down plans, etc.), then your question may just be "Do I put it all in at once or do I ease into it?" The answer to that is personal. On the average, over long periods, again, the sooner you put all of it to work, the better. However, that also means immediately embracing the full volatility of your target portfolio. If you aren't comfortable with that -- or if you think markets are high right now -- there's no reason not to ease in through putting, say, 25% to work at a time over the course of, say, a year. But don't take too long -- too much cash for too long is effectively a guarantee of a loss of value (since cash is earning less than inflation).
| 05.24.16 @ 19:32
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 20:47
Answered by Chance Barrett, Financial Adviser in Kalispell, MT
Good Afternoon Kim,

That is a great question and one that I have heard a lot. My first recommendation is finding a Financial Advisor that you are comfortable talking with. All advisors have access to basically the same investments but it will be the relationship and ability to communicate with your advisor that will have the biggest impact on your investment experience.

Once you have establish a good relationship, then your Advisor should learn about what your goals and expectations are in order to help determine what investments are available that match up to your needs. Then you can get into the details of costs, portfolio mix, etc. with a better understanding, since it is a strategy tailored to your needs.

I hope that helps and please don't hesitate to call with any other questions.

Chance | 05.24.16 @ 19:35
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 20:47
Hi Kim,

Simple answer is with a plan.

A plan not only for your retirement needs and goals, which you can get most anywhere, but a plan that specifically addresses managing risk. Now that you are retired, you most likely cannot afford to lose a lot of money in the markets which is what I hear in reading your question.

In my opinion, the two most important elements to investing especially in retirement are liquidity and principal protection. Whether you will be taking income from your IRA now or at a later date, you want to manage it to keep potential losses within both your emotional and financial tolerances - what you can accept emotionally, and what you can accept financially to keep you on track with your retirement needs and goals.

To help us determine how we can help you, visit our website and click the START HERE button on the home page and follow the prompts - it's complimentary and is a great starting point regardless of whether we work together or not. If you prefer you can call us - both our website and telephone number are listed on my profile here on MoneyTips.
| 05.24.16 @ 20:11
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 20:47
Answered by Barry Rabinowitz, Financial Adviser in Plantation, FL
Now is always the right time to invest. It's time in the market, not market timing that is the key to long-term investment success.

Depending on your age and risk tolerance you need to follow an asset allocation and stick to it. Asset allocation divides your funds among equities and fixed income, bonds.

Cash is trash, and interest rates in Money Markets will continue to offer very little return. | 05.24.16 @ 20:54
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 20:47
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