IRA investment question

[ua_guy]

Because of some recently completed rollovers, about ~27% of my IRA is now cash.

One of my thoughts is to buy a 2 year CD at 5.65%. Some of my investments (target fund, vanguard funds) are doing better, some worse. That's a decent rate on a CD and I will make that rate for 24 months. I'm just not sure if that's shedding too much risk given a potentially higher return in other investments.

[disneysteve]

What's your desired asset allocation? Can you buy that CD and still be within your target AA? If so and you're happy getting 5.65% for a couple of years, sure. I just bought a CD in one of my IRAs last week.

[myrdale]

Unless you're at retirement age, I think I would keep it in mutual funds.

[ua_guy]

What's your desired asset allocation? Can you buy that CD and still be within your target AA? If so and you're happy getting 5.65% for a couple of years, sure. I just bought a CD in one of my IRAs last week.

That's part of the problem, I don't have a desired AA. For years I've just saved, saved, saved, and haven't gotten too far into specific details. Vanguard funds are low expense so I've picked a few of those along with a 2045 retirement fund and have stuck with them and kept shoveling in cash.

Here's my allocation percentage and 10 year growth

CD @ 5.6% - 4.7% (no performance data, I just bought this recently)
VDIGX / Vanguard Dividend Growth Fund: 12.6%, 10 year performance +10.24%
VEIPX / Vanguard Equity Income Investor CL: 13.0%, "" +8.88%
VGHCX / Vanguard Healthcare Investor Fund: 21%, "" +9.69%
VTIVX / Vanguard Target Retirement 2045 Fund: 12.9%, "" +6.93%
VWUSX / Vanguard US Growth Fund Investor: 7.8%, "" +10.25%

Maybe it doesn't make sense to put the 28.3% that's currently sitting in cash only into a CD, but I also don't know what to do with it. It can go into my existing funds. It could also buy more CD's. or Maybe there's something I'm totally neglecting to do or think about, but should.

I don't play in individual stocks. I've watched too many people get burned by that except the few who invested in things like Apple, Microsoft, Starbucks, Amazon, back in the day. They're not rich, but they did make a pretty penny on the money they put into those.

[disneysteve]

I think an asset allocation is an important part of your plan. You could sock a big percentage of income into a savings account earning 0.1% interest and still never be able to retire. You could put 100% into bonds and never be able to retire. You could put 100% into stocks and not be able to sleep at night watching the daily and monthly gyrations of the market. You need an allocation that matches your goals and timeline and risk tolerance. I don't recall how old you are or when you're aiming to retire but you've got a large enough portfolio at this point to be able to sit down and decide where you're heading and how best to get there.

Personally, we're currently 60.92% stock, 27.47% bond, and 11.61% cash. I'm very comfortable with that and plan to stay there for the foreseeable future. But I'm also all but retired and we're already drawing from our portfolio to cover living expenses. 5+ years ago our stock allocation was more like 80-85% but we don't need that level of risk anymore.

[LivingAlmostLarge]

I agree depends on what you want to do

[ua_guy]

It's hard to come up with a specific goal, and I don't know what it will cost. The headline is I'd like to be done working for food by about 60, live in a paid off home, and devote my time to leisure and/or working as desired and trying new pursuits to see where talent and interest leads me. I don't plan on increasing my lifestyle, in fact, I think it gets a little cheaper except for some planned travel. Boredom and healthcare are my two biggest worries.

I'll need to slice/dice to determine where my asset allocation is now, but based on the funds I've picked, I'm still very heavy in stocks. 60 is still about 2 decades away so I think that AA is still working in the way I need. But I've taken this discussion as impetus to focus on that and figure out where my money actually is, and how much it makes sense to have in cash.

[disneysteve]

It's hard to come up with a specific goal

I'd like to be done working for food by about 60
live in a paid off home

That sounds like two very specific goals to me.

It's pretty simple to figure out the 2nd one. You can use a loan calculator to determine how much you need to pay each month to have the house paid off by a certain date.

The 1st goal isn't quite so simple but there are plenty of good online calculators to play with to model retirement saving and spending. FireCalc.com is a popular one. You can slice and dice everything there such as retirement spending, taxes, income, Social Security and pensions, portfolio allocation, etc.

You're already doing the most important part which is saving. Now you can work on fine tuning your portfolio to match your goals, timeline, and risk tolerance. If you're 40-ish and aren't looking to retire for 20 years, most would say your cash allocation should be relatively low. A 6-month EF and some money for short-term needs is probably plenty. Of course that said, when you can get 5+% on your cash like you can today, that may change the recommendation.

[LivingAlmostLarge]

It's hard to come up with a specific goal, and I don't know what it will cost. The headline is I'd like to be done working for food by about 60, live in a paid off home, and devote my time to leisure and/or working as desired and trying new pursuits to see where talent and interest leads me. I don't plan on increasing my lifestyle, in fact, I think it gets a little cheaper except for some planned travel. Boredom and healthcare are my two biggest worries.

I'll need to slice/dice to determine where my asset allocation is now, but based on the funds I've picked, I'm still very heavy in stocks. 60 is still about 2 decades away so I think that AA is still working in the way I need. But I've taken this discussion as impetus to focus on that and figure out where my money actually is, and how much it makes sense to have in cash.

Part of it depends on how you plan on handling your retirement. Will you scale back slowly so or quit and go cold turkey? Will you do a conversion ladder of roth? So taking advantage of 401ks is a big deal. You convert at a lower rate than when you were earning.