When I retired in September 2022, my 401(k) was invested aggressively (90/10 split between stocks to bonds) and lost approximately 30%. I left the 401(k) invested in mutual funds in hopes it would gain back some of the losses. A year later it has gained back approximately 20%. I’m not required to take RMDs for another five years. My question is should I transfer the 401(k) funds to my traditional IRA account, which is invested 100% in equities and let an advisor manage the account? Or should I leave it in the mutual funds and rebalance the stock/bond percentage to be less aggressive, say 80/20 or 70/30?
– Bev
Congratulations on your recent retirement and being in what sounds like a stable financial position. Your question is a simple but somewhat loaded one. The answer depends a lot on what you want and need from your retirement account and what you would want from an advisor. Instead of 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.)
Assessing Your Situation
The reason I say it sounds like you may be in a good financial position is the implication that you aren’t withdrawing from your account. I take that to mean you have enough other income or savings to get you through until required minimum distributions (RMDs) begin. If so, that’s great that you’re able to do that.
That being said, let’s talk about your asset allocation – the mix of different investments you hold. On one hand, for a retiree to have 90% of their investments in stocks is incredibly aggressive. For the vast majority of retirees, that would be too aggressive. Ordinarily, that money needs to be much more stable so you can take regular withdrawals from it. Since you implied that you won’t begin withdrawals for another five years, this may not be the case for you.
Your investment horizon may be much longer, and you may not need the money you’re required to withdraw once you hit RMD age. If that’s the case, it’s possible that you have the capacity to invest aggressively in stocks, although I can’t say for certain based on the information you shared. (And if you need help selecting an appropriate asset allocation, consider speaking with a financial advisor.)
Consider Your Risk Tolerance
Of course, your attitude toward risk comes into play, too. You made the right choice by waiting it out rather than panic-selling after your account dropped in value. This suggests you may have a high enough risk tolerance to stomach an aggressive asset allocation. However, consider how stressed you were, too.
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 is important that you ask yourself what you want from the money. (A financial advisor can help you answer this all-important question.)
Is there a goal you’re saving that money for? Does it need to support your income? Are you wanting 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 the way you tied rolling your 401(k) into an IRA, investing it 100% in stocks and letting an advisor manage it all together. Those are each independent decisions that aren’t inherently connected.
Again, make sure you think through your goals and what you want to accomplish with the money. An advisor who is also a financial planner would help you with this. A financial planner can also help you make sense of how you should be investing given your goals and risk tolerance. I think that is key. Financial planners may also be able to manage your investments for you in a way that aligns with the plan the two of you lay out. (And if you’re ready to work with a financial advisor, this tool can help you match with one.)
Bottom Line
Don’t make investment allocation decisions in a vacuum. Consider your personal situation, attitudes and goals. Then, choose an allocation that is most appropriate for you. This should be the approach whether you choose to do it on your own or with the help of an advisor.
Tips for Finding a Financial Advisor
- 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 have free introductory calls with your advisor matches to decide which one you feel 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.
Brandon Renfro, 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 AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not a participant in the SmartAdvisor Match platform, and he has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.
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