At age 61 with $800,000 in a money market account. What is the best investment move?

I have $800,000 in a money market account because I don’t know what else to do with it. My hope was that I can put it into something that can produce about 4-5% growth. I also have $900,000 in my 401(k) sitting in minimal risk accounts at Vanguard. I will be 62 later this year and I cannot afford to lose or go back to what happened to me in the early 2000s..

Kevin

I totally understand your concerns here Kevin. You’ve worked hard to build up those savings, and it’s scary to think about risking them on something as unpredictable as the stock market. I think it’s important to honor these concerns while also understanding that there are risks in being too conservative. The ultimate goal is to find a balance that works for you. (And if you need help selecting an asset allocation and investment plan that’s right for your risk tolerance, consider working with a financial advisor.)

Respect your discomfort

First, it is important to give due consideration to the concerns you have about the scholarship. Investing is about much more than numbers. Investing is an emotional endeavor, and your feelings about it matter.

Remember, consistency is one of the hallmarks of a successful investment plan. Sticking to your plan through the ups and downs, rather than succumbing to the frenzy of the day, is one of the best ways to make sure your money lasts as long as you need it to.

While I wouldn’t encourage you to give in to fear completely, it’s important to acknowledge it. Brushing off or minimizing your concerns would likely lead to a strategy that doesn’t really fit your investing personality, and in turn lead to emotional decisions that negatively impact your returns. (And if you need help assessing your risk tolerance, consider working with a financial advisor.)

The flip side of risk

At the same time, it’s important to recognize that a stock market decline isn’t the only risk you face. There is also the risk of being too conservative.

The 4% rule — which essentially says you can withdraw 4% of your investment portfolio each year in retirement with little risk of running out of money — is based on a portfolio of 50% stocks and 50% bonds. Bill Bengen, who did the original research, actually looked at more conservative portfolios with stocks between 0% and 25% and found that they were less likely to last that long.

In other words, being too conservative with your portfolio actually reduces the chances that it will last as long as you need it to.

Some of this is due to inflation. You need your money to grow just to keep up with inflation and allow you to continue to be able to afford the same expenses you’ve always had. If your goal is to make sure you’ll have enough money to support you for the rest of your life, research shows that a significant allocation to stocks is generally the right move. (And if you need help building an investment portfolio that aligns with your risk tolerance, consider matching with a financial advisor.)

The story continues

Finding the right balance

When I work with clients, I try to emphasize that there is no “right” answer here. There is no perfect solution that will give you the exact return for the exact level of risk.

Instead, the goal is to land on something that’s good enough. You want a portfolio that is not so conservative that it causes you to fall short of your goals, and not so aggressive that you are exposed to more risk than you are comfortable or able to handle.

If you’re looking for something that offers 4%-5% interest with little to no downside, you can get it right now from certain savings accounts, money market funds, and certificates of deposit (CDs). These rates will fluctuate, however, unless you lock in a CD for a longer term, so you may earn more or less depending on general economic conditions. And this strategy would definitely fall on the conservative end of things, which could end up hurting you in the long run.

Alternatively, a diversified portfolio of 60% stocks and 40% bonds would likely have an expected long-term return of 6%-6.5%, although of course this can vary widely from year to year. I personally like to put my clients in a mix of index funds that track US and international stock markets as well as US and international bond markets.

If you need more help, don’t be afraid to ask. Investing can be scary and confusing, and sometimes the peace of mind and behavioral coaching provided by a good financial advisor can be worth the cost. (And if you need help finding a counselor, this tool can help match you with one.)

Conclusion

Just know that whatever you do, there will inevitably be ups and downs. And whatever you do, there will always be a different strategy you could have chosen that would have worked better. If you can make peace with those things and stick to your “good enough” plan, you’ll be in good shape.

Tips for finding a financial advisor

• If you need help building an investment plan that’s right for your risk tolerance and goals, a financial advisor can help. Finding a financial advisor doesn’t have to be difficult. The free SmartAsset tool matches you with up to three verified financial advisors serving your area, and you can interview your advisor matches for free to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals , get started now.

• Consider several advisors before choosing one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to make sure you’re making the right choice.

• Keep an emergency fund handy in case you face unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations, such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high interest account allows you to earn compound interest. Compare savings accounts from these banks.

Matt Becker, CFP®, is SmartAsset’s financial planning columnist and answers readers’ questions about personal finance and tax topics. Have a question you’d like answered? Email [email protected] and your question may be answered in a future column.

Please note that Matt is not a participant in the SmartAsset AMP platform, is not an employee of SmartAsset, and has been compensated for this article.

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