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Next year I’ll be receiving a small inheritance. I am 53 years old and would like to add this to my retirement investments. Currently I have some mutual fund investments, a Roth IRA, invested in mutual funds, and a couple of CD’s. I also have a 401(k) offered through my employer where they match what I put in up to the first $150 per month, so I have $300 per month going into the 401(k). Obviously my mutual funds, Roth IRA and 401(k) investments have suffered lately with the market’s downturn. My question is where is the best place for me to put this inheritance? I’m leaning towards CD’s, but because I want this to grow for my retirement, I’m not sure this is the best place for it. Any suggestions? Thanks, Randy of Sioux City

Randy,
It sounds like you’re off to a good start and while we can’t make specific investment recommendations on this site, we can offer the following advice – do a thorough assessment of your risk tolerance and your current portfolio’s (including your 401(k), mutual fund, Roth IRA and CDs) allocation. Only you can answer how much risk you are willing to take with your investments. If you are completely risk adverse, then you will probably be most comfortable with a portfolio full of CD’s and other cash investments. If you’re completely indifferent to risk and can sleep at night no matter what’s occurring in the stock market, then you might be completely comfortable with a 100% stock portfolio. However, if you’re like the majority of investors, you fall somewhere in the middle and you’ll want a combination of asset types ranging from conservative to risky. Looking at your current allocation, the split between stocks, bonds and cash, will give you an idea about your current level of diversification. Do you have adequate exposure to all three asset classes and is the exposure within each of the asset classes diversified as well? Looking at these things will give you an indication as to where you might be under or over weighted relative to where you need to be in order to reach your goals. This brings us to the next part of the equation, how does your portfolio need to be positioned to reach your goals? We suggest you sit down with a qualified advisor and have them assess your current situation. You’ll want an advisor that’s experienced in building portfolios tailored to meet specific goals so they’ll be able to give you a good idea of what type of return you’ll need and what a portfolio designed to get that type of return might look like.

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I am 64 years old. I have an employer sponsored 401(k) and some mutual fund investments. My current mix is about 60% stock, 40% fixed income. I do not plan on retiring for at least 5 years. Your thoughts? John, Elk Point

John,

Assuming your asking our thoughts on your overall allocation, you have what we consider a moderate portfolio and one that is in-line with what we see for a lot of our clients with characteristics similar to what you’ve described. Unfortunately, there is no universal rule that says if you’re this age, then your portfolio should look like this. Whether or not this portfolio mix is right for you depends upon several things such as your time horizon, which you’ve given us a feel for, your risk tolerance, value of the current assets, and lifestyle goals once in retirement. Only after having a thorough discussion focusing on these variables would we be able to determine if this is a good portfolio for you or if there is another more appropriate portfolio for your needs.

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My mother will be 65 in September. She has a 401(k), which will be her primary source of income in retirement when she retires at 67. We seem to have a difference of opinion about how this money should be invested, risky stocks or safer bonds. She currently has some in both and is happy with that. I think she should have most, if not all of it, in bonds. Her broker is telling her to leave it as it is. What do you think? Charlotte, Sioux Falls

Dear Charlotte,

I think I understand why you feel your mother’s 401(k) should be invested much more conservatively, you’re afraid she’ll suffer losses and won’t be able to live the type of lifestyle she wants in retirement. Given what’s occurred in the market over the past year or so, your feelings are understandable. However, your mom’s thought process is correct. Having a diversified portfolio is what she wants. The idea of moving to a more conservative portfolio, as we get closer to retirement or to needing the investment assets, is correct, but only to a point. Very few of us will have accumulated enough at retirement to live off our portfolio without having it still produce some growth for us once we’re in our retirement years. Even if we do have enough at retirement, we’ll still need some stock exposure just to keep pace with inflation so we can preserve our purchasing power throughout our golden years.