Question: I'm getting ready to retire in a month and I want to know if I should convert everything...
Q: I’m getting ready to retire in a month and I want to know if I should convert everything to CDs or cash? I’m 62 and have a small pension, some rental income, a 401(k) and a few CDs.
Ric: The fact that you are retiring in 30 days is irrelevant from an investment management perspective.
It’s common for people to think they should move all of their money to CDs or government bonds when they retire, but such thinking is misguided. Ignore the fact that you are retiring in 30 days. Instead, focus on the fact that you may be alive for 20 years or more. Not only do you need to generate income for that entire time, you need that income to increase over time — to offset inflation. Thus, it would be foolish to shift all your assets into CDs and bonds, because those investments are not likely to protect you from inflation.
Instead, you should invest in a highly diversified portfolio. If you already have one, you may need to tweak it so it remains appropriate for your changing circumstances. But that doesn’t mean throwing all your life savings into CDs.
To see what an appropriate portfolio might look like, use the Guide to Portfolio Selection — it’s fast, fun and free.
Diversification does not assure a profit or protect against loss in a declining market.