Investment Advice needed-401K distribution

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Chip Shot
Posts: 144
Joined: Tue Apr 30, 2019 5:42 am

Investment Advice needed-401K distribution

Post by Chip Shot »

My 401K plan with a previous employer had a nice 3% guaranteed stable value fund. That fund was the reason that I left my money in the 401K.
I received a notice that the 401K plan was changing to a new provider and guess what? No similar fund in the new plan.
Yesterday, I closed out the account and am waiting for the check. I will be rolling this into my traditional IRA at Vanguard.

My question is, what should I invest this money (250K) in at Vanguard? How can I best replicate the 3% return with minimal risk?
I do not want to change my AA, so I wont be buying stock, not to excited about bond funds, Treasuries maybe? Brokered CDs?
BV3273
Posts: 860
Joined: Mon Oct 19, 2015 7:20 pm

Re: Investment Advice needed-401K distribution

Post by BV3273 »

I think some of the MM funds at Vanguard have been yielding around 2+% it’s not 3% but it’s better than nothing.
dbr
Posts: 41905
Joined: Sun Mar 04, 2007 9:50 am

Re: Investment Advice needed-401K distribution

Post by dbr »

A standard answer is that the money should be invested according to whatever overall plan you already have.

It might be a generalization that a kind of standard equivalent to a stable value fund would be an intermediate term bond fund, though there are significant differences, in particular the fund value is no longer stable. For a long term investor that would be ok. If this money is earmarked for the shorter term (not likely) CDs might be a good alternative. Long term investors in stocks and bonds do not have a lot of reason to absolutely minimize bond risk and you can't anyway given natural variability in yield and reinvestment risk.

If you are not satisfied with the overall return of your portfolio the standard handle on that is to invest more in equities.
Topic Author
Chip Shot
Posts: 144
Joined: Tue Apr 30, 2019 5:42 am

Re: Investment Advice needed-401K distribution

Post by Chip Shot »

My AA is right where I want it, so investing in stocks would obviously change that.
I am very comfortable with this money being in a basically cash like investment. I do not consider this to be a long term investment, as this would most likely be one of the initial investments that I will draw upon when I retire in a year.
That said, I have no problem with tying up the money for a year or two max.
I am thinking that maybe treasuries might be the answer. I have never purchased them and I am completely unaware of the process
dbr
Posts: 41905
Joined: Sun Mar 04, 2007 9:50 am

Re: Investment Advice needed-401K distribution

Post by dbr »

Chip Shot wrote: Fri Aug 05, 2022 9:30 am My AA is right where I want it, so investing in stocks would obviously change that.
I am very comfortable with this money being in a basically cash like investment. I do not consider this to be a long term investment, as this would most likely be one of the initial investments that I will draw upon when I retire in a year.
That said, I have no problem with tying up the money for a year or two max.
I am thinking that maybe treasuries might be the answer. I have never purchased them and I am completely unaware of the process
A couple of comments:

1. The timeline for a retirement is the length of the retirement and not one year based on starting to withdraw money. You should probably be thinking of a time span of maybe 30 years. A reasonable stock allocation and intermediate bond funds are a good match to that. Some points of view would suggest longer bonds are a good duration match to that time period but I think adding in long bonds in retirement is a step too far.

2. Treasuries could be a good choice. A 50/50 selection of an intermediate Treasury fund and an intermediate TIPS fund could be a good match for your position. I chose 50/50 for the first 15 years of retirement and have ended up at all TIPS intermediate fund from here out.

One point is that cash holdings for cash management purposes is not the same thing as an asset allocation decision. I have found that 2%-3% of the portfolio inevitably sloshing around in cash here and there is unavoidable. But then I count my checking account in the asset allocation.

Another factor is that how much cash income one has in Social Security, pensions, and annuities affects one's attitude about holding cash. It can be perfectly reasonable to stash some cash in CDs, high yield savings accounts, T bills, or even short multiyear guaranteed annuities. I would not engage in adding a Treasury Direct account just to do this. Bonds can be bought at brokers, but all in all, I don't think individual bonds are really all that beneficial.
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retired@50
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Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Investment Advice needed-401K distribution

Post by retired@50 »

Chip Shot wrote: Fri Aug 05, 2022 9:30 am ...
That said, I have no problem with tying up the money for a year or two max.
I am thinking that maybe treasuries might be the answer. I have never purchased them and I am completely unaware of the process
It sounds like short term treasury bills might suit your needs.

You can (probably) buy treasuries at your broker. Here's a handy "How-To" article from Harry Sit, The Finance Buff.

https://thefinancebuff.com/treasury-bil ... arket.html

Regards,
This is one person's opinion. Nothing more.
exodusNH
Posts: 4792
Joined: Wed Jan 06, 2021 8:21 pm

Re: Investment Advice needed-401K distribution

Post by exodusNH »

Chip Shot wrote: Fri Aug 05, 2022 5:52 am My 401K plan with a previous employer had a nice 3% guaranteed stable value fund. That fund was the reason that I left my money in the 401K.
I received a notice that the 401K plan was changing to a new provider and guess what? No similar fund in the new plan.
Yesterday, I closed out the account and am waiting for the check. I will be rolling this into my traditional IRA at Vanguard.

My question is, what should I invest this money (250K) in at Vanguard? How can I best replicate the 3% return with minimal risk?
I do not want to change my AA, so I wont be buying stock, not to excited about bond funds, Treasuries maybe? Brokered CDs?
You could also look at a MYGA if you can tie it up for 3 years.

Otherwise, brokered CDs or Treasuries.
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