Question: My financial advisor has been on a trade for an entire year and has left $7,500 in cash in my Roth IRA since January. I had $600,000 in assets at the beginning of the year. Some minimal reallocation would be appropriate, wouldn’t it? And at a minimum, I shouldn’t have any cash in my Roth, should I? What should I do?
Answer: It sounds like you’re overdue to sit down with your advisor to review your portfolio strategy and get direct answers to your questions. Indeed, an advisor should make it clear to you under what circumstances they will change an investment account and what their company’s process is to ensure the money is not in the form of cash and is being invested, Certified financial planner Daniel Forbes of Forbes Financial said. Planning. “Ask a counselor to clarify these questions,” says Forbes. (Looking for a financial advisor? This tool can help connect you with an advisor who can meet your needs.)
That doesn’t mean your financial advisor has to amend your account all the time. Real, Pioneers recommends rebalancing every six months or so, while Morningstar’s Christine Benz speak to do it annually, although others suggest monthly. And some experts say it’s normal for some advisors to just rebalance every year. Steve Zakelj, certified financial planner with Flatirons Wealth Management, says, “More than anything, I recommend asking your advisor for discussion or explanation. That said all, again, your advisor was flawed by not communicating their strategy to you.
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Here’s another question: How much will the rebalancing benefit you — or not? “Surprisingly, there is so much correlation between stocks and bonds this year that there is not nearly as much opportunity for rebalancing as one might think. If bonds go up, or even stay flat, there could be some opportunity, but when bonds go down the opportunities are limited,” said Springboard Asset certified financial planner Charles Green Management said. (Looking for a financial advisor? This tool can help connect you with an advisor who can meet your needs.)
And as certified financial planner Jarrod Sandra of Chisholm Wealth Management notes: “When everything moves in tandem, it doesn’t offer many opportunities. If the portfolio consists of only 3 to 5 funds, they probably haven’t moved out of range to allow for reallocation or rebalancing,” Sandra said.
What about the cash in your Roth? Some experts say that doesn’t necessarily have to do with having cash in your Roth IRA, depending on your exact circumstances: “Are you saying you have $600,000 in your Roth IRA? Or are there other accounts? If you had a $600,000 Roth IRA with $7,500 in cash, I’m not sure I’d be upset,” Zakelj said. Indeed, many firms or advisors want or are required to maintain a 1-2% cash balance at all times. “Given that stocks and bonds are falling this year, having cash is most likely the best place,” said Zakelj.
Zakelj also adds that he wants to know if the other account is taxable as the rebalancing could have negative tax consequences. “What assets are you investing in? Zakelj says some investments don’t allow for short-term rebalancing.
It may also depend on the age of your Roth, some experts say. There is a 5-year Roth conversion rule that requires you to wait before withdrawing any converted balance, contributions or earnings, regardless of your age; therefore, depending on your other cash reserves, it may be prudent to keep a small amount of this investment as cash as you will be able to use these funds in an emergency. , experts said.
“If you have enough other emergency assets, these funds should be invested. That said, keeping it in cash could save you some money this year,” says certified financial planner Danna Jacobs of Legacy Care Wealth. And certified financial planner Charles Sachs points out, “Since an RMD is not required for Roth’s, I think that account would be invested to hold the asset with the highest expected return in the portfolio. your investment.”
But this still comes back to the problem of communicating with your advisor: You don’t know what they’re doing or why, and that’s a problem. If you can’t fix the situation to your liking, find someone new. (Looking for a financial advisor? This tool can help connect you with an advisor who can meet your needs.)
Questions edited for brevity and clarity.
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