Nicholas Scheibner is quoted on this topic in an article in NJMoneyHelp.com by Karin Price Mueller, originally published on February 24, 2021.
A 90-second read by Nicholas Scheibner, CFP®: If you are uncertain about what to do with your 401(k) from a former employer who discontinued their plan, and how to invest it for retirement, here is a 3-point checklist of investing new money that may help answer your questions:
First, ask yourself, when will I need this money?
If you need this money in the next few months, you may not wish to invest it. Keep the funds in cash, so that you’ll be certain the full account value is there when you need it. In your case, since you are 54 years old, if you did need to withdraw the funds from your IRA account, you will be taxed on the money and penalized.
Second, what account type should this money be held in?
Investing can be done in many different types of accounts. Depending on your goals, and your tax situation, you’ll want to make sure the appropriate account type is selected to hold the funds. For your situation, the first thing to do is to open an IRA Rollover account with an investment custodian. You’ll want to deposit those funds into that account as soon as possible, to avoid any taxation on the funds.
Third, what risk level am I comfortable with?
There is no certainty when it comes to investing. You can choose investments that are typically more stable and may generate a smaller return on your investment, or you can choose to invest in typically riskier investments that may generate a larger return. Nothing is guaranteed. This is where you need to factor in two pillars of your investment philosophy: Ability and Willingness. Based on your personal financial plan, you may need to take more risk to achieve your goals in retirement. Or, you may have enough saved that you do not need much risk in the plan. This is where a Certified Financial Planner can help you. Willingness however is an emotional scale of how you react when the account loses or gains value. We’re all happy when the account increases in value. But how will you feel if the account loses 10%? How about 20%? Stocks were down nearly 30% in March of 2020. An investment advisor can help guide you during those times, but you ultimately need to be able to stomach the amount of volatility in your portfolio.
If you have any further questions, please reach out to your Baron Team.
Disclosure: This is a general communication being provided for informational purposes only. Past performance is no guarantee of future results. Every investment strategy has the potential for profit or loss. This material is not intended to be relied upon as a forecast, research, tax or investment advice. Please consult your tax planning professional for personal tax advice.