Question: I’m 68, have $1.6M in the market managed by a large firm, have no debt, own 2 properties and my wife is taking her SSA but I haven’t started yet. My investment portfolio has been flat for 18 months so I’m considering parking it all in CDs and reviewing it again in 2 years. Does this seem like a good plan? Would I benefit from hiring an adviser to help me explore other options?
Answer: You’ve got a couple questions here. First, let’s address whether you might want a financial adviser to help you (this free tool from SmartAsset can match you to an adviser who may meet your needs). Then we’ll get into whether it makes sense to park all that money into CDs: The short answer is no, but more on that later.
Have an issue with your financial adviser or looking for a new one? Email questions and concerns to picks@marketwatch.com.
Should you hire a financial adviser?
Most pros will give you this piece of advice: Don’t try to time the market, and instead keep with your long-term plan if you have one. A long-term plan should reflect your retirement projections, healthcare plan, housing, insurance, transportation, legacy and more. “There are many factors to consider when making decisions about investments and there are tradeoffs between safety, security and growth. Having a long term perspective can sometimes be very beneficial with regard to framing near-term decisions,” says certified financial planner Anthony Ferreira at WorthPointe Wealth Management.
If you do not have a long-term plan, it may be prudent to hire a pro to help develop one, and invest accordingly. Consider hiring a fee-only certified financial planner. CFPs must complete extensive coursework, exams and thousands of hours of work-related experience. CFPs are also bound to a fiduciary duty, meaning they’re required to put their clients best interests first over their own, eliminating conflicts of interest. Here are the questions to ask any adviser you might want to hire, and you can use this tool to match you to an adviser who may meet your needs.
Even if you have a long-term plan, it may still behoove you to switch who is managing your money. At the large firm you’re working with, advisers may earn commissions by selling you things that may not be in your best interest. Make sure you understand how the advisers you are working with get paid. Ask other questions too. “If your portfolio has been flat for 18 months, do you know why? The large firm that is managing your money for you should be conducting reviews at least annually to explain how your portfolio has been performing and why,” says Ryan Haiss, certified financial planner at Flynn Zito Capital Management.
Bottom line: It’s worth getting a second opinion, says certified financial planner Josh St. Laurent at Wealth in Yourself. And prior to altering your portfolio, it would be best to have a professional review your portfolio and discuss your goals with you. It may be that you want to pay a one-time fee and get a one-time plan (some advisers offer this service for anywhere between $1,500 and $7,500), or it may be that you want ongoing help (many advisers charge based on assets under management (AUM) and charge roughly 1% of the assets they manage).
Should you park your money in CDs right now?
It’s true that 2022 was an especially tough year for both stocks and bonds, and while 2023 started off stronger, it’s still been a turbulent year. “Looking back at the S&P 500 over the last 18 months it has been flat, so it’s not surprising that your portfolio has been as well,” says St. Laurent. As of September 30, 2023, the 1 year return on the S&P 500 is 19.59%.
Even so, it’s about thinking long-term. To that end, Haiss says he would never advocate for moving all your money into CDs. “While CDs may feel safe, they are typically not appropriate for long term investments because they will lose to inflation over time. Investors have a much better chance of being successful with their investments by staying in the market instead of trying to time the market,” says Haiss.
Furthermore, it’s rarely a good idea to move all of your assets into a single asset class. “A good financial plan should include cash for shorter term spending needs and stability, income investments to provide cash flow that can be used for the future and growth investments to help you increase your wealth and offset the impacts of inflation,” says certified financial planner David Edmisten at Next Phase Financial Planning.
And CDs aren’t without their downsides. “My biggest concern about parking it all in CDs is the fact that you can’t get to it for that 2-year period. If there’s a medical emergency, a business opportunity, a trip of a lifetime or a new family member, your money will be stuck in the bank,” says St. Laurent.
Furthermore, if you leave the market for CDs, what will be your catalyst to get back in? Haiss says most people that try to time the market find themselves waiting for the market to drop. “Then, when it does, they are often too scared to buy at lower prices. Timing the market is often a lose-lose situation and you’re best suited maintaining a diversified portfolio and rebalancing at least semi-annually to take advantage of any market volatility,” says Haiss.
That’s not to say you shouldn’t put your money in CDs. “You just shouldn’t do it because the recent markets have been flat. If you were to run a financial plan based on your lifestyle and spending habits and it was plausible that you could sit in CDs for the rest of your life without running out of money, then there is nothing wrong with that,” says certified financial planner Joe Favorito at Landmark Wealth Management.
If there are any short term withdrawal needs, say less than 12 months, high yield savings accounts and CDs can be attractive given current interest rates. Still, “There are many factors to consider when making decisions about investments and there are tradeoffs between safety, security and growth. Having a long term perspective can sometimes be very beneficial with regard to framing near-term decisions,” says certified financial planner Anthony Ferreira at WorthPointe Wealth Management.
And one final thought: Though you may not keep up with inflation by having your money in CDs, it may not matter if you have enough accumulated to last your lifetime. “Investing is about growing your assets at a fast enough pace to maintain your lifestyle. It’s not about doing better than your neighbor,” says Favorito. (Looking for a new financial adviser? This free tool can match you to an adviser who may meets your needs.)
Have an issue with your financial adviser or looking for a new one? Email questions and concerns to picks@marketwatch.com.
