So I’m very close to pressing capital one investing’s big green button and beginning the process of rolling my 403(b) into a rollover ira, but I have one more question to answer: where do I put the money?
Should I stick all $42K into the same low-cost index fund, or should I split it among a few different low-cost index funds? Maybe a low-cost index fund and a lifecycle fund?
I have no idea where to start besides typing “invest everything in one index fund” into Google, so here we go.
Okay, I got nothing. Nobody is really asking this question, which might mean it is a strange question to ask. The online financial advice either assumes you’ve just saved up your first $3,000, so of course you should invest the entire pile into the same low-cost index fund, or you’ve got enough money that you need an investment advisor to determine the right portfolio balance to help you meet your future goals.
Then I turned to my favorite financial tome, The Value of Debt in Building Wealth, and re-read the chapter on investments. There’s a section on ensuring that your investments aren’t too U.S.-heavy (gotta get some international investments in your portfolio) but this seems to be the big takeaway:
A Core portfolio should be diversified so that some assets are rising while others are falling. Some part of your investments should be losing money at any given point. Consider having no less than seven different low-correlated asset classes with a minimum weighting of 5 percent in each for a well-diversified portfolio. Ideally, rebalancing would lead you to buy more of the assets which had done poorly recently and to sell some of the assets which had recently done well.
This makes sense. It also involves more time and effort than I am able to give at the moment. Someday, maybe—but right now I’m focusing on increasing my net worth the best way I know how: building my skills and earning more money.
So. This is what I think I want to do, and it may be a foolish plan, but we also know that low-cost index funds have consistently outperformed actively managed portfolios over the past 15 years, and I’m going to count myself as a person who might have to actively manage seven different low-correlated asset classes.
I want to rollover my 403(b) into an IRA and put everything in the same low-cost index fund, which I have already selected and researched.
My Roth IRA is currently invested in a low-cost lifecycle fund, and I want to keep making the maximum contribution every year and continue that investment.
That way, I have two big piles, each invested in a different fund and each taxed differently.
I may change my investment strategy in the future, but I’m hoping this will work for now. At least it’ll get my 403(b) cash into a lower-expense-ratio’d investment, which should theoretically earn me money over time—which was the whole point of me spending a week figuring out whether rolling over my 403(b) was a smart move.