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IRA Balances At Five-Year Highs: Time for a Retirement Check-Up

Thanks to the stock market’s upward trend since the recession (if the trend hadn’t been upward, we couldn’t say “since the recession”), policy changes that allow investors to convert traditional IRAs to Roth IRAs without limit other than the income tax bill, and perhaps even younger savers inspired to plan for their retirement by saving more of their income in these particular savings vehicles, IRA balances are at five-year highs according to Fidelity.

The accounts aren’t at all-time highs, so there is still some work to be done, but this is could be a sign that investors are taking advantage of the long-term benefits of remaining invested, contributing to their future, and not remaining satisfied with workplace 401(k) plans.

Today is as good a day as any to perform a routine check-up on your retirement accounts. The goal with a check-up is to review your balances and your future contributions to determine whether you’re on the path you want to be. Despite what you might hear, there is only so much you can control with your investments. You could invest most practically for forty years and in your retirement be faced with a recession no one expected, reducing the value of your assets at the same time you plan to be using them to support your lifestyle.

There are ways to reduce this risk of exposure. A recession at the least opportune time is always a factor, but if you’re in the earlier stages of planning for retirement, the goal should be to build your exposure to the time benefits of the stock market. Your check-up should take into account how much risk you’re willing to take in return for the benefits of the stock market’s long-term growth.

Check your balances. I took the news of five-year high balances to check my own. I knew there would be a problem if my IRA balances were not at five-year highs as well. I logged into my Vanguard and Fidelity accounts (I also have a small amount invested in TIAA-CREF).

These are the IRAs I have at Vanguard:

  • Rollover IRA. This is a Traditional IRA I created when I left my full-time day job working for a financial company in 2010. My 401(k) at that company consisted of expensive funds, diversified between large-cap, mid-cap, and small-cap investments, international and domestic stocks, and a little bit of real estate through a REIT funds. When I rolled the 401(k) into the IRA, I moved all the varied investments into Vanguard’s low-cost VTSAX, the Vanguard Total Stock Market Index Admiral Shares. My 401(k) at this company was split between a traditional 401(k) and a Roth 401(k), so this Rollover IRA received just the traditional portion. My personal total rate of return in this account is about 35 percent since April 2011.
  • Roth IRA. My Roth IRA, which I contributed directly to when I qualified and which received the rollover from the Roth portion of my 401(k), is also invested entirely in VTSAX. My personal total rate of return in the Roth IRA, which considers the timing of investments, is about 50% since March 2009.
  • SEP IRA. My SEP IRA is a Traditional IRA. I started this account when my own business was generating revenue and I wanted to save more of it for retirement. Since March 2007, this account has provided a personal total rate of return of 69%. Like the other accounts, it’s invested completely in VTSAX.

I have a smaller Rollover IRA at Fidelity. This account originated as a 401(k) managed by Fidelity with an employer I worked for briefly. It’s invested in FSITX, the Spartan US Bond Fund, and is down 4.4% since the rollover. It’s a manifestation of the generalization that bond funds don’t provide good returns when stock market funds do. It’s a small portion of my overall portfolio, and bond funds do play a role in my particular investment goals over the long term, so I’m not terribly concerned about this particular decrease.

Check your future contributions. My current plan is to invest annually in a Traditional or Roth IRA (Traditional this year, Roth in future years unless my income situation changes) to the maximum allowed. I’ll stick with VTSAX. Overall, when I include more than just my IRAs, I do have a more conservative portfolio that includes more bond funds. In order to get a full picture of my investment allocation, I had to open Quicken, which pulls all my investments into once place for analysis.

I’m embarrassed to admit I haven’t checked Quicken in several months. Years ago, I used the software every day, but I’ve fallen out of that practice.

You can see my current investment allocation on the right. Ignore the “target allocation” information — I haven’t updated that from Quicken’s default settings. My allocation includes more bond funds than one might expect for my age (thirty-seven) but my portfolio consists of proceeds from the sale of a business, so the traditional thinking is that, at the moment, I can afford to take on less risk.

I have a significant amount in cash still, though, because I still believe I’ll be buying a house at some point. I’ve been saying that for a few years, but the opportunity for settling down just hasn’t been in my short-term plan. The money is there, though, for the moment the time is right for me, if ever.

Reevaluate your goals. Creating an investing strategy doesn’t make sense unless it’s part of some larger plan — a plan that goes beyond just how much money you’d like to have when you retire, which seems to be the singular focus of popular personal finance. Do you want to retire? Why do you want to retire? What do you want to do with your life once you’re financially independent? What will your New York Times obituary say about the time you spent alive? Where do you want to live?

Once you know the answers to these questions — and “knowing” may be a stretch because it’s likely some of these large concepts you just figure out as you go along, if you figure them out at all — you can determine what you need to achieve these goals from a financial perspective and build an investment plan around that. As a general rule, you’re probably fine if you just assume that building your wealth as much as possible while limiting your risk will give you the opportunity to do whatever you like when you want, or at least will present more opportunities.

Rebalance your investments according to your needs. If your asset allocation has strayed from the ideal allocation driven by your future needs, which is often the case as stocks, for example, perform the best at different times than bonds, you may need to rebalance. Use some of the increase in your stock fund to invest in bonds, which may be available at a bargain right now. This is a great way to sell high and buy low, the elusive strategy espoused by financial planners everywhere but rarely put into action properly by investors.

In your IRAs, selling and buying funds shouldn’t result in any transaction fees or tax implications. Fees are the peskiest critters in investment accounts. Avoiding them is a great way to make sure you’re getting the most out of your investments. Low-cost index mutual funds like those at Vanguard and Fidelity are all that’s necessary to build wealth over the long-term, and if you’re looking for short-term increases, you’re probably sacrificing your long-term financial independence anyway.

How are your IRA balances today? Are you seeing the news from Fidelity that balances are at a five-year high reflected in your own accounts? Are you taking the stock market’s recent performance as an opportunity to find bargains in other assets as you look towards growing your wealth over the long term?

Published or updated July 17, 2013.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 1 comment… read it below or add one }

avatar 1 Anonymous

I actually love all of information on your blog. I think what I like best is that your on “our side” (a consumer who is telling us the best way to go about it) in the finance world. Which is great because a banker (is not completely unbiased at all times, if you know what I mean?) and a financial lawyer is expensive, or even a financial consultant type. And personally I’ve only known rich people to use them. I do find all the finance terms confusing though. A lot of your articles seem to be for those who already have some footing in the finance world. What about someone who is just getting started and knows basically nothing. Is there a book, article or a specific thing you could point to just learn super basic beginning things?

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