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I'm 54. I have $156K in a traditional IRA in 18-month bank CD earning .55% This amount represents my retirement fund "cash out" from previous employer. With current employer, I have $58k in a 403b that is managed by Diversified. Currently, I have 90% in interm./Long-term Bonds and 10% in stocks. I w

Feb 16, 2013 by Larry from Springfield, VA in  |  Flag
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5 votes
Alfred F Level 13

This is a very difficult question to post to this forum since it truly requires a one-on-one relationship with an advisor

You will get numerous responses on this forum but none of them will truly give you an independent objective answer since there is no way to access all of the information necessary. There are a host of variables that will go into this decision and that is why advisers are paid to give you advice specific to your unique circumstances

I would recommend engaging a local advisory firm preferably one that is registered with the SEC as an investment advisor

1 Comment   |  Flag   |  Feb 16, 2013 from Wayne, PA
Eric

Good Advice. Well put.

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Flag |  Feb 16, 2013 near Denver, CO

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5 votes

There are some good answers here, I agree with much of what was said about hiring an independent fee-only financial planner. As mentioned above you are currently losing a good chunk of change to inflation every year. Here are the inflation numbers for the last few years.

Jan 1, 2013 1.59% Jan 1, 2012 2.93% Jan 1, 2011 1.63% Jan 1, 2010 2.63% Jan 1, 2009 0.03% Jan 1, 2008 4.28%

As you can see, on a purchasing power basis you are losing 1.5% to 3.5% of your purchasing power each year to inflation. If you invested in your CDs ealsisc 0.55% in 2008, you would have $1033 for every $1000 you invested. However, to buy the same things you bought for $1000 in 2008, you would need $1138 today.

Additionally, interest rates are at an all time low. When interest rates start to go up, previously issued bonds that offer lower interest rates sell for less on the market. So if interest rates go up a few points, your "safe" bond portfolio could sustain significant losses. Intermediate and long term bonds will be hit harder by rising interest rates than short term bonds.

In a rising interest rate environment your "safe" bond portfolio could in fact be more risky than the classic 60/40 stocks/bonds portfolio. Therefore, it's a good idea to diversify across bonds, stocks, real estate, and real assets to protect yourself from the impact that rising interest rates could have on your portfolio.

Comment   |  Flag   |  Feb 25, 2013 from Chester, MD

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Eric Level 17

Since I don't know all the particulars of your situation I will speak more to the generalities of diversification and risk. Looking at your two current retirement assets, IRA and 403b, the bulk of your money is sitting in instruments (CDs) that are safe from market risk, but have other risk associated with them. One of these risks is the risk of not providing enough income producing power for you in retirement. The other is inflation risk (Your dollars can't buy what they could 10 years ago). Your 403b carries interest rate risk, which could drive the value of your bonds down significantly. These risks can be hedged against and/or diversified away, while providing the potential for a better rate of return and limiting investment loss. I would strongly recommend meeting with a fee only independent investment advisor and working out a diversified investment strategy for all of your assets. In my opinion products should not be looked at until you have an investment or financial plan in place. Avoid the banks, brokers, and insurance companies that want to sell you product and talk to someone that gets paid over a long relationship with you. Sorry if this is too generic in nature, but the bottom line is you need to speak with an advisor. (Fee Only Independent Advisers can be found here on this site by looking at the adviser profile) Good Luck!

Comment   |  Flag   |  Feb 16, 2013 from Denver, CO

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Jason Hull Level 20

I will suggest this - you don't need someone who's going to take 1-2% of your money every year. That will mean less money for you to work with to reach your retirement goals, and it will probably cause the advisor (if he/she is trying to help you reach your retirement targets for your money) to take a higher amount of risk. Fees will kill you. Get someone who will TEACH you about what you need to know to answer these questions yourself. 84% of actively managed mutual funds UNDERPERFORMED the market ( http://investorplace.com/2012/03/actively-managed-mutual-funds-underperform/ ). You're getting a good start by asking questions here, but don't then fall for someone who's going to show you some pretty charts and try to convince you that you need to pay loads or management fees for their services or sell you some high commission product which is going to line the salesperson's pocket. Good advice is worth paying for, but you don't need to continue to pay a couple of Gs every year to get it. Do it one time and get smart on what you need to do. Then, if some extenuating circumstance comes up, you can check back in, or you can do an azimuth check to make sure you're going in the right direction.

http://www.hullfinancialplanning.com/the-cost-of-fees-in-your-investments/

http://www.hullfinancialplanning.com/chart-porn-and-personal-finance/

Comment   |  Flag   |  Feb 16, 2013 from Fort Worth, TX

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Great points made by Eric and Alfred. You really need to speak with an independent advisor. I would suggest that you are going to be better off leaving your money in your IRA and having an advisor work with you to create a portfolio that best meets your needs (rather than moving money into a 403b with limitations).

Comment   |  Flag   |  Feb 16, 2013 from Long Beach, CA

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Larry, there is a lot of information not presented here. At 54 years old, you have over 97% of your retirement assets in fixed income. That, in my opinion, is a ‘Cash Preservation’ portfolio. I would recommend this to someone who just wants to be sure the principal amount is not at any risk. If this is the level of risk you are most comfortable with, do not let anyone talk you into a riskier portfolio. You need to be in a risk class that allows you to sleep at night. This is not to say you should not seek to educate yourself further, because you really should do that. Just don’t let anyone talk yourself into something you are not comfortable with.

You have no market risk, but you do have inflation risk. And with the government having been printing through their ‘quantitative easing’, most economists consider inflation a problem that is just around the corner. I’m not slamming quantitative easing. Personally, I feel quantitative easing has been very effective; just know to expect that it will likely be followed by inflation.

Secondly, since 2008, there have been significant outflows out of equities and inflows into bonds. With the economic climate improving, equity outflow has reversed. Interestingly, bond inflow has not yet reversed, but many economists expect that it will. So, just as in recent years when a lot of people put their money in bonds and the price and returns went up, if a significant number of people sell, particularly if inflation is rising, you can see bond prices plummet. Depending on the specific types of bonds you are invested in, this could really hurt.

Short term, inflation may spike, but I would be more concerned that you would want to, at the very least, keep up with long term inflation. From the information I have, you do not have a huge nest-egg for retirement, and ideally, I would hope that you could maintain some moderate growth for retirement, but still stay within a your comfort level for risk.

Having all of your IRA assets in a CD at .55% sounds like you walked into a bank and they sold you the only product they had. Not that I am a lover of CD’s, but even in this low interest environment, you can shop for a CD, or even an interest paying checking account that pays more than 1%

Consider my advice, along with the advice from other advisors here. Consider seeking advice from a local financial advisor or a trusted friend neighbor or co-worker. Your employer may have a financial advisor you can speak to, but be wary of the 403(b) vendors. Typically, they are focused only on selling you their product, and are not necessarily strong on giving personalized advice Ask questions.

Comment   |  Flag   |  Feb 25, 2013 from Delray Beach, FL

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