MONEY Roth IRA

Here’s the Best Way to Invest a Roth IRA in Your 20s

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: I just rolled over a Roth 401(k) from my previous employer into a Roth IRA. How diversified should my Roth IRA investments be? How do I select the right balance being a 28-year-old? – KC, New York, NY

A: First, good for you for reinvesting your retirement savings. Pulling money out of your 401(k) can do serious damage to your retirement prospects—and that’s a common mistake that many people make, especially young investors, when they leave their employers. According to Vanguard, 29% of 401(k) investors overall and 35% of 20-somethings cashed out their 401(k)s when switching jobs.

Cashing out triggers income taxes and a 10% penalty if you’re under 59 ½. And you lose years of growth when you drain a chunk of savings. Cash-outs can cut your retirement income by 27%, according to Aon Hewitt.

So you’re off to a good start by rolling that money into an IRA, says Brad Sullivan, a certified financial planner and senior vice president at Beverly Hills Wealth Management in California.

At your age, you have thirty or more years until retirement. With such a long-time horizon, you need to be focused on long-term growth, and the best way to achieve that goal is to invest heavily in stocks, says Sullivan. Over time, stocks outperform more conservative investments, as well as inflation. Since the 1920s, large cap stocks have posted an average annual return of about 10% vs. 5% to 6% for bonds, while inflation clocked in at 3%.

Granted, stocks can deliver sharp losses along the way, but you have plenty of time to wait for the market to recover. A good starting point for setting your stock allocation, says Sullivan, is an old rule of thumb: subtract your age from 110 and invest that percentage of your assets in stocks and the rest in bonds. For you, that would mean a 80%/20% mix of stocks and bonds.

But whether you should opt for that mix also depends on your tolerance for risk. If you get nervous during volatile times in the stock market, keeping a higher allocation in conservative investments such as bonds—perhaps 30%—may help you stay the course during bear markets. “You have to be comfortable with your asset allocation,” says Sullivan. “You don’t want to get so nervous that you pull your money out of the market when it is down.” For those who don’t sweat market downturns, 80% or 90% in stocks is fine, says Sullivan.

Diversification is also important. For the stock portion of your portfolio, Sullivan recommends about 70% in U.S. stocks and 30% in international stocks, with a mix of large, mid-sized and small cap equities. (For more portfolio help, try this asset allocation tool.)

All this might seem complicated, but it doesn’t have to be. You could put together a well-diversified portfolio with a few low-cost index options: A total stock market index fund for U.S. equities, a total international stock index fund and a total U.S. bond market fund. (Check out our Money 50 list of recommended funds and ETFs for candidates.)

Another option is to invest your IRA in a target-date fund. You simply choose a fund that’s labeled with the year you plan to retire, and it will automatically adjust the mix of stocks, bonds and cash to maximize your return and minimize your risk as you get older.

That’s a strategy that more young people are embracing as target-date funds become more available in 401(k) plans. Among people in their 20s, one-third have retirement savings invested in target-date funds, according to the Employee Benefit Research Institute.

Keeping your investments in a Roth is also smart. The money you put into a Roth is withdrawn tax-free. What’s more, you’re likely to have a higher tax rate at retirement, which makes Roth IRAs especially beneficial for younger retirement savers.

Still, you can’t beat a 401(k) for pumping up retirement savings. You can put away up to $18,000 a year in a 401(k) vs. just $5,500 in an IRA—plus, most plans offer an employer match. So don’t hesitate to enroll, if you have another opportunity, especially if the plan offers a good menu of low-cost investments.

If that’s the case, look into the possibility of a doing a “reverse rollover”: transferring your Roth IRA into your new employer’s 401(k), says Sullivan. About 70% of 401(k)s allow reverse rollovers, according to the Plan Sponsor Council of America, and a growing number offer a Roth 401(k), which could accept your Roth IRA. It will be easier to stay on top of your asset allocation if you’ve got all your retirement savings in one place.

Read next: This Is the Biggest Mistake People Make With Their IRAs

MONEY Ask the Expert

The Best Way to Fix Your Investment Mix

Investing illustration
Robert A. Di Ieso, Jr.

Q: I need to rebalance my portfolio. Is it best to adjust my investments all at once or a certain amount daily, weekly, or monthly? — Cheryl, Corona, Calif.

A: Rebalancing, which refers to periodically resetting your mix of stocks, bonds, and other assets to your desired levels, is key to successful investing over the long run.

Not only does it force you to lighten up on the parts of your portfolio that have seen the biggest gains recently — and therefore tend to have more risk — it forces you to stay true to your plan (i.e. asset allocation).

But as with most things, there can be too much of a good thing. Most investors should plan to rebalance their portfolios about once a year and, in most cases, no more than twice annually.

Why?

“Rebalancing means you have a transaction, and a transaction inherently involves costs,” says Bob Phillips, a chartered financial analyst and managing principal at Spectrum Management Group in Indianapolis, Ind. If you are rebalancing in a taxable account, there are transaction-related expenses, such as trading commissions or mutual fund loads.

There are also tax-related expenses to account for, which can be a real drag on returns. If you rebalanced daily, weekly or even monthly, says Phillips, “the tax recording would be ungodly and the cost of having your tax return prepared with all those transactions might be more than what you gained from rebalancing.”

In fact, in a study published by the CFA Institute, the researchers found that for most investors the best strategy was to do it all at once, generally once a year and only if your asset allocation is more than 5% out of whack.

“So if your target allocation is 60% stocks and 40% bonds, you would not rebalance if your stocks grew to 63% of the portfolio and bonds fell to 37%,” says Phillips, noting that the researchers ran thousands of scenarios to come to this conclusion. (In this case, you would only want to rebalance after your equity allocation drifted to more than 65% or less than 55%.)

In the case of a 401(k) plan or other retirement account, you can afford to rebalance more frequently. But even then, it’s best to do so in moderation.

After all, if you were rebalancing daily in a rising market, you’d be constantly selling investments before they’ve had much room to run.

Keep in mind that rebalancing need not require selling your pricier assets.

One way to keep things in balance in your 401(k) without incurring transaction fees and tax headaches is to simply tweak how you invest your new contributions (assuming you are still contributing).

For instance, say you want a 60% stock/40% bond allocation, but by year end you notice that it has drifted to 65% equities. Here, you would leave your already accumulated assets alone. But you would put most of your new 401(k) contributions into bonds until your accumulated balance shifts closer to that desired 60/40 mix.

MONEY Savings

When $1.5 Million Isn’t Enough for Retirement

Q: I am 76 and have been retired for more than 10 years. I have $1.5 million. Is that enough to last till I am 100? How do I make sure I am on track? – William Ricketts

A: It may be surprising that someone who still has $1.5 million a decade into retirement would need to ask if it’s enough. But it’s a legitimate worry. “Whether $1.5 million is enough depends on your lifestyle and spending,” says Theodore Saade, a senior partner at Signature Estate & Investment Advisors in Los Angeles.

Let’s put that $1.5 million in perspective. Using a traditional 4% annual withdrawal rate (increased each year for inflation), a 66-year-old retiring with that amount could safely start out with an income of $60,000 a year, assuming a 30-year time horizon. If you have $1.5 million at age 76, you can withdraw a bit more—perhaps 6% or 7% year—without risking a major decline in your living standards if markets dip. That works out to an income of $90,000 to $105,000.

Read next: When Good Investments Are Bad for Your Retirement Savings

You may not even need to withdraw that much, since you most likely have Social Security income too. A typical single person earning $75,000 a year who claims at full retirement age might receive a payout of $24,000 a year. For a couple, Social Security could easily provide a combined $30,000 to $40,000 a year. All of which suggests you can probably maintain a six-figure income with little risk of running short in retirement.

Whether that income is really enough, however, depends on your spending needs and your financial goals, which might include helping one or more grandkids pay for college or leaving money to heirs. To see if you’re on track, plug in your expenses into a planning calculator, such as Fidelity’s Retirement Income Planner; and to see how long your money will last, try our retirement calculator here.

These projections assume you are keeping your assets invested in a mix of bonds and stocks. Even at 76, you’re still investing for two or more decades, so you need to keep some money in stocks for growth. “It’s not uncommon to live into your 90s and even to 100, and the number of people who do is growing,” says Saade. If you stash that $1.5 million only in low-yielding but stable investments, such as Treasury bonds and money market funds, you may feel more secure. But over those decades, inflation can severely erode your nest egg.

Looking beyond your portfolio, there’s an even bigger risk to consider: incurring medical bills and, especially, long-term care costs. While more people are living longer and healthier lives, the older you get, the more likely it is that you will have some health issues. About 70% of people turning 65 today will eventually need at least some kind of long-term care, which isn’t generally covered by Medicare.

Read next: What You Can Expect from Medicare on Its 50th Anniversary

So it makes sense to plan ahead by checking out costs for long-term care in your area. These prices vary widely by region, but the average stay in an assisted living facility can run $42,000 year, while nursing home care may cost $77,000 or more. Granted, not everyone will need years of expensive care—the average nursing home stay is less than a year. Even so, it’s better to understand your costs and options, says Saade. Odds are, with the right planning, $1.5 million will be enough to meet most of your goals.

You Might Also Like:

Here’s the Best Way to Invest a Roth IRA in Your 20s

Here’s What to Do If Your 401(k) Stinks

MONEY Ask the Expert

Can You Write Off Your Vacation Home?

Ask the Expert – Everyday Money illustration pulling cash out of wallet
Robert A. Di Ieso, Jr.

Q: I own a vacation home on the beach. I want to rent it out for part of the year and use it myself the rest of the time. Can I write off my expenses?

A: The answer depends on how much you use the home yourself. If your property is rented most or all of the time, you should be able to deduct your rental expenses, although you’ll also be declaring the rental income. But when you also use a rental property as a home, deductions may be limited.

One key thing to know: The IRS defines personal-use days broadly, including days a property is being used by relatives — even if they pay market-rate rent — as well as time the property is being used by non-family members who do not pay market-rate rent. Any days you fully devote to repairing or maintaining the property are not counted as personal use days, however — no matter how relaxing you find rewiring the bathroom.

Taxpayers tend to fall into three different categories, say CPAs, depending on how often they rent the space and their level of personal use.

Limited Rental Use

If the property is rented for fewer than 15 days a year, or less than 10% of the total number of days you could rent it to others at a fair rental price — whichever is greater — you do not have to report or pay taxes on any of the rental income you receive, says Jerry Love, a CPA in Abilene, Texas.

Love calls this the Masters Golf loophole, as it can be a huge boon for owners of properties located near events like the Masters Golf Tournament, the Super Bowl or Mardi Gras that tend to drive up rental rates for a short period of time.

You will not be eligible for a Schedule E deduction for any expenses associated with renting the property. You can, however, deduct qualified residential interest expense and real estate taxes as itemized expenses on Schedule A, as you would with your primary residence or other property used for personal needs.

Hybrid Rental and Personal Use

When you both occupy the property and rent it out for 15 days or more per year, you must report the rental income you receive to the IRS, and you can deduct part of your rental expenses and depreciation.

To determine your deduction, you would need to divide your expenses between personal use days and rental days, says Love. If you plan on renting out the home half the year, for instance, 50% of the property use is rental, meaning you can allocate 50% of your maintenance, utilities and insurance costs to the rental, as well as 50% of your depreciation allowance, interest, and taxes for the property.

Note that your deductions cannot exceed the amount of income you received. “You can’t claim a loss, but you can offset the rental income,” says CPA and financial planner Ted Sarenski in Syracuse, N.Y.

The IRS recommends that for the rental portion of expenses, you use the deduction for interest and taxes first, followed by operating costs and then depreciation. Any expenses you were unable to deduct because of the limit can be carried forward for possible future use against rental income.

You can also take separate deductions — although not the depreciation — against the portion of personal use days. So in the example above, the remaining 50% of the interest you paid could be deducted on Schedule A.

Limited Personal Use

Use your rental property fewer than 15 days a year, or less than 10% of possible rental days? In that case, the property won’t be considered a residence and so your rental expense deductions are not limited to the property’s rental income, meaning you can claim the loss.

However, you still must prorate expenses to eliminate any period of personal use. Let’s say you stayed in your beach house 10 days a year, and rented it out the other 355 days. In that case, 10/365 (or 2.7%) of each expense you incurred could not be taken as a deduction on Schedule E as a rental property expense.

You do not have to prorate deductions that are directly related to renting it out, such as advertising or listing fees, says Love. You can still deduct any property taxes attributable to the personal portion on Schedule A, but not your mortgage interest, since the property isn’t a residence.

You can also deduct travel costs to your vacation home as a business deduction, says Love, as long as the reason for the trip is related to maintenance needs — like winterizing a ski condo in Colorado before renters arrive — and is not for your own family vacation.

MONEY 401(k)s

Here’s What to Do If Your 401(k) Stinks

Q: My employer offers a 401(k) plan with a match. But all the funds in the plan have fees greater than 1.5%. That seems expensive. What should I do? – Jayesh Narwaney, Colorado

A: “Costs are one of the top things you should look at in a 401(k) plan,” says Mike Tedone, CPA and partner at Connecticut Wealth Management in Farmington, Conn. If your plan charges, say, an extra 1% in fees, that could reduce your retirement savings by 17% over a couple of decades.

Unfortunately, those fees are something that many workers overlook—and it’s easy to understand why. Plan costs aren’t easy to decipher, even though federal rules went into effect two years ago requiring better disclosure of 401(k) fees and investments. A National Association of Retirement Plan Participants study found that 58% of working Americans don’t realize they are even paying fees on their workplace retirement savings plans. And among those who were aware of costs, one out of four weren’t sure how much they were paying.

Here’s what you should know: Most workers pay two kinds of fees in 401(k)s. One category is the plan administration fees, which cover the paperwork and day-to-day operations. These costs might range from a few dollars to nearly $60 year, though some employers will foot this bill.

The other cost, and the biggest one, is the investment fees, which are paid to the managers of your funds. Investments fees typically aren’t covered by the employer—they are pooled together and deducted from your plan assets. You’ll see it listed in plan documents as the fund’s expense ratio.

How much does the average worker pay for a 401(k) plan? The costs, all-in, vary by plan size, but they generally range from 0.5% of assets for large company plans to 1.5% for smaller plans, says Tedone. Large plans tend to have lower fees than small plans because they can take advantage of economies of scale. So if the funds in your plan have investment fees of 1.5%—and that doesn’t include the administrative costs—your 401(k) expenses are indeed high.

To get a more specific idea of how your fees compare to other plans, you can check out BrightScope, which rates more than 50,000 401(k)s.

Unfortunately, there’s not a lot you can do to improve your 401(k) on your own. You could ask your employer to add lower-cost choices, but that isn’t likely to happen anytime soon.

That doesn’t mean you should give up on your plan, though. If your employer offers matching contributions, you should save at least enough to get the match. “That’s free money, and you don’t want to miss out on that,” says Tedone. Also, if you’re married and your spouse has a better 401(k) plan, be sure to max that out.

Meanwhile, you do have other options. First, check to see if your company offers a self-directed brokerage window, which allows you to choose your own funds. If you’re comfortable selecting your own investments, you can build a mix of lower-cost index funds or ETFs. Or you can simply opt for an inexpensive target-date fund.

If your 401(k) doesn’t offer a brokerage window, consider saving outside your plan in a traditional or Roth IRA, which will give you the freedom to pick the investments. You do face lower contribution limits in IRAs, though—up to $5,500 a year for a traditional or a Roth IRA (those 50 and older can save an additional $1,000) vs. $18,000 in a 401(k). And you must meet certain income limits to qualify for tax breaks.

At the end of day, though, it’s hard to beat your 401(k) for building retirement savings, despite the high costs. The plan allows you to put away the most money on a tax-sheltered basis. What’s more, it’s the easiest way to save, since your contributions are automatically taken out of your paycheck. “When you take all that into account, your plan isn’t as bad as you think,” says Tedone. And at some point, when you change jobs, you’ll be able to move your savings to a better 401(k) or IRA.

Read next: Here’s How Much Cash You Need in Retirement

MONEY Insurance

Here’s How to Figure Out How Much Life Insurance You Need

Ask the Expert - Family Finance illustration
Robert A. Di Ieso, Jr.

Q: How much insurance should I have? I was recently married and have been considering acquiring life insurance. We do not have any children, and I cannot really find any information on how much I should get. — Marcus Smail

A: It’s a smart move to get life insurance if you have a spouse or other family members who depend on you and your income, especially if you don’t have a large savings account.

Figuring out how much insurance you should buy basically boils down to answering one question: How much income do your survivors need if you’re gone?

Of course, to know this you’ll need to first look at your debt, monthly spending, monthly savings, and your long-term savings goals, as well as your expected funeral/estate settling costs. Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute, recommends using this calculator from Life Happens, which walks you through the process by allowing you to input those details, as well as play with the estimated inflation rate and after-tax investment yield to get a recommended figure for the amount of life insurance you need.

Weisbart suggests getting coverage equal to 10 times your annual income, if you can afford the premiums. “Anything less doesn’t provide much transitional time for your surviving spouse or children,” he says. “You don’t want to put them under time pressure while they try to adjust to life without you.”

This approach, which is focused on income replacement, generally results in a large amount of insurance coverage. Another approach people use when determining life insurance needs is to focus instead on buying enough insurance to keep their financial obligations from causing a hardship to their survivors. “They’d look at the mortgage, car leases, and other commitments they’ve made and figure out how much their family would need to cover those bills without their income,” Weisbart says.

Keep in mind that you may already have some life insurance coverage through your employer and that your spouse and children may be eligible for Social Security survivor benefits, depending on how many credits you have earned at the time of your death. Any funds stored away in retirement accounts or other savings vehicles can also be factored in to lower the total amount of insurance coverage you’ll need.

Before you decide to purchase a policy and select a coverage amount, it is a good idea to meet with a fee-only certified financial adviser, who can tell you if the amount you estimated using the calculator is, in fact, correct for your situation and family. An adviser can also help you decide what kind of life insurance you should purchase and the amount you should expect to pay for it. Says Weisbart: “It’s good to talk through this with someone who has done this a couple of thousand times before and who can really guide you.”

Be sure to revisit your life insurance coverage amount when major life events occur, such as the birth of a child, divorce, or when you become empty-nesters, as your coverage needs will likely alter.

MONEY Ask the Expert

What’s the Difference Between an Index Fund, an ETF, and a Mutual Fund?

Investing illustration
Robert A. Di Ieso, Jr.

Q: What is the difference between index funds, ETFs, and mutual funds? — Gary

A: An easy way to think about it is this: Exchange-traded funds, or ETFs, are a subset of index funds; and index funds are a subset of mutual funds.

“It’s like a funnel,” says Christine Benz, director of personal finance at fund tracker Morningstar.

Let’s start with the broadest of the three categories: mutual funds.

What is a mutual fund

A mutual fund is a basket of stocks, bonds, or other types of assets. This basket is professionally managed by an investment company on behalf of investors who don’t have the time, know-how, or resources to buy a diversified collection of individual securities on their own.

In exchange, the fund charges investors a fee, which may run around 1% of assets annually or more. That means $100 for every $10,000 you invest.

In the case of most stock funds, holdings are selected by a portfolio manager, whose job it is to pick the stocks that he or she thinks are poised to perform the best while avoiding the clunkers. This process is referred to as “active management.”

But “active management” isn’t the only way to run a mutual fund.

What is an index fund

An index fund adheres to an entirely different strategy.

Instead of picking and choosing just those stocks that the portfolio manager thinks will outperform, an index fund buys all the shares that make up a particular index, like the Standard & Poor’s 500 index of blue chip stocks or the Russell 2000 index of small-company shares. The aim is to replicate the performance of that entire market.

But because index funds buy and hold rather than trade frequently — and require no analysts to research companies — they are much cheaper to operate. The Schwab S&P 500 Index fund, for example, charges just 0.09%, or $9 for every $10,000 you invest.

By definition, when you own all the stocks that make up a market, you’ll earn just “average” returns of all the stocks in that market. This raises the question: Who would want to settle for just “average” performance?

As it turns out, plenty of investors around the world. While it’s counter-intuitive, academic research has shown that the higher expenses associated with active management and the inherent difficulty of picking winning stocks consistently over long periods of time means that most funds that aim to beat the market actually end up behind in the long run.

“In general, active funds have not delivered impressive performance,” Benz says. Indeed, S&P Dow Jones Indices has studied the performance of actively managed funds. Over the past 10 years, less than 20% of actively managed blue chip stock funds have outperformed the S&P 500 index of blue chip stocks while fewer than 15% of small-company stock funds have beaten the Russell 2000 index of small-cap shares.

What are ETFs

Okay, index funds sound like a good bet. But what type of index fund should you go with?

Broadly speaking, there are two types. On the one hand, there are traditional index mutual funds like the Vanguard 500 Index. Then there are so-called exchange-traded funds, such as the SPDR S&P 500 ETF SPDR S&P 500 ETF SPY -0.15% .

Both will give you similar results, but they are structured somewhat differently.

For starters, with a mutual fund, you often buy and sell shares directly with the fund company. The fund company will let you trade those shares once a day, based on that day’s closing price.

ETFs, on the other hand, aren’t sold directly by fund companies. Instead, they are listed on an exchange, and you must have a brokerage account to buy and sell those shares. That convenience typically comes at a price: Just like with stocks, investors pay a brokerage commission whenever they buy and sell.

That means for small investors, traditional index mutual funds are often more cost effective. “If you are on the hook for trading costs, that can really eat into your returns,” says Benz.

On the other hand, because they are exchange traded, ETF shares can be traded throughout the day. Being able to trade in and out of funds during the day is a convenience that has proved popular for many investors. For the past decade exchange-traded funds have been one of the fastest growing corners of the fund business.

Read next: 5 Things You Didn’t Know About the World’s Biggest Bond Fund

MONEY Ask the Expert

3 Simple Ways to Build a Low-Risk Portfolio

Investing illustration
Robert A. Di Ieso, Jr.

Q: My 89-year-old father has $750,000 after selling his Medtronic stock and paying capital gains. He’d like to make a low-risk investment with easy accessibility, but one that would give him more than a savings account. Any suggestions? — Karen

A: Before your father gets too focused on where he should reinvest the proceeds of this sale, it’s important to ask how this fits into the bigger picture of his finances, says Shari Burns, a chartered financial analyst and managing director with United Capital in Seattle.

Given the current state of the bond market — interest rates are very low but poised to move higher this year, which would threaten the value of older bonds — there is no simple answer for making a low-risk investment that is easily accessible and that pays more than just a savings account.

“Preserving principal is one priority, and getting a better return than a savings account is another,” says Burns, noting that any time you look for additional reward, you’re taking on additional risk.

With that in mind, your father needs to think about his priorities and his timeline. Let’s consider three scenarios:

Scenario # 1: He needs all the proceeds of the stock sale to support his cost of living.

Under this scenario, he should start with how much he needs and for roughly how many years. Working backwards will help him determine the right balance of risk and reward.

In simplistic terms, his $750,000 translates to $75,000 in annual income for the next 10 years. To keep up with inflation and preserve capital consider a mix of cash and individual bonds.

Burns suggests keeping $250,000 in a savings account to draw on over the next few years. “If short-term rates go up, then the interest on the savings account will rise,” she says.

Your dad can then invest the remaining $500,000 in a laddered bond portfolio of individual Treasury securities. A simple way to build such a “ladder” is to divide that money equally among Treasuries maturing in two-year increments, starting with 2-year notes and going out to 10-year securities.

At current rates, those Treasuries are paying out 0.72%, 1.29%, 1.74%, 2.07% and 2.33% respectively. So combined, this $500,000 ladder will average 1.63% per year or $8,140 in annual income for the first few years.

“As you spend down the savings account, you will replenish your cash as bonds mature in the years that remain,” she says. “After 10 years your portfolio will be depleted.” It’s important to point out that because your father is holding these bonds to maturity, rising rates aren’t a concern.

Scenario #2: He doesn’t need the additional income but will rest easy knowing it’s safe.

Under the second scenario — which we’ll venture to say is the most likely based on the size of this single holding – he will probably want to keep about 70% to 75% of these funds in cash and a short-term bond fund, such as the Vanguard Short-Term Bond Index VANGUARD SHORT-TERM BOND INDEX INV VBISX 0.19% .

The remaining 25% to 30% should go to a low-cost stock fund, such as the Schwab S&P 500 Index fund SCHWAB S&P 500 SWPPX -0.24% or the Vanguard Total World Stock Index fund VANGUARD TOTAL WORLD STK INDEX INV VTWSX 0.2% . “The stock portion of the portfolio will provide growth over time, which will keep the total portfolio ahead of inflation,” she says. Because neither the bond market nor the stock market are exactly cheap, however, it makes sense to dollar-cost average into these portfolios over the next six months to a year.

Scenario #3: He wants to preserve wealth to eventually pass this on to his heirs or charity.

Finally, if your father is more focused on long-term wealth preservation, he may want to rethink his goal and invest for the long term, she says. “He will want the capital to rise faster than inflation to maintain the purchasing power of his wealth,” she says. Use the same approach described above, only plan to bring the equity portion up to 50% to 60% of this segment of the portfolio.

Read next: The Low-Risk, High-Reward Way to Buy Your First Investment Property

MONEY Ask the Expert

Can Debt Collectors Go After My Retirement Savings in Court?

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: My wife retired late last year and we are thinking about rolling some of her 401(k) assets into an IRA account. We live in California and understand that the protections from creditors and in bankruptcy vary. Does this move make sense for us? —Max Liu

A: There are a lot of good reasons to roll money from a 401(k) plan into an IRA after retiring. In an IRA, you have greater control over your assets. You can own individual stocks, ETFs, or even real estate, and not be bound to the often-limited menu of investment options in your company’s plan. Since you are not working any longer, there is no concern over getting an employer match. If the fees seem high or you just don’t like maneuvering the plan’s website, a rollover may make sense.

But you are right to consider protection from creditors. In general, all assets inside a 401(k) plan are out of reach of creditors, both inside or outside of bankruptcy. That’s often true of 401(k) assets rolled into an IRA, as well—though you may be required to prove that those assets came from a 401(k). For that reason, never co-mingle rolled over assets with those from a self-funded IRA, says Howard Rosen, an asset protection attorney in Miami, Fla. He advises opening a new account for the roll over.

Federal law sets these protections. But through local bankruptcy code, 33 states have put their own spin on the rules—and California is one of those. “You need to understand that when you move assets from a 401(k) plan to an IRA, you are moving from full protection to limited protection,” says Jeffrey Verdon, an asset protection attorney in Newport Beach, Calif.

States like Texas and Florida make virtually no distinction between assets in a 401(k) and those rolled into an IRA, he says. Assets are fully protected from creditors in both types of retirement account. Further, in such states the distributions from such accounts are also protected.

But in California, creditors may come after any IRA assets not deemed necessary for living expenses. They may also come after any distributions you take from your IRA. You can protect up to $1.25 million through bankruptcy, a figure that resets every three years to account for inflation. But that is a total for all IRA assets, not each account, says Cyrus Amini, a financial adviser at Charlesworth and Rugg in Woodland Hills, Calif. And note, too, that a critical ruling last year determined that inherited IRAs are no longer protected.

To understand IRA protections in other states, you may need to speak with the office of the state securities commissioner or state attorney. Many of the state rules have been shaped through case law, and so you may want to consult a private attorney, says Amini. Another good starting point is the legal sites Nolo.com and protectyou.com.

MONEY Ask the Expert

The Best Way To Buy Stocks Warren Buffett Likes

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’d like information on the “dividend aristocrats” that Warren Buffett has talked about. Should I buy them through a fund or a direct purchase plan? — Sheron Milliner

A: There’s no hard-and-fast rule about what stocks qualify as “dividend aristocrats,” but the moniker typically refers to companies that have consistently paid and raised their dividends — without fail — for at least several consecutive years.

The exact number of years is up for debate. Standard & Poor’s runs several equity indexes that track these types of companies. One benchmark that focuses on S&P 500 companies requires at least 25 consecutive years of dividend increases; a broader-based U.S. index looks for stocks that have boosted their payouts for 20 years or more; and a European version defines a dividend aristocrat as a stock that has boosted its payments for at least 10 straight years.

The dividend itself doesn’t have to be that large either — “it just has to be sustainable,” says Ron Weiner, CEO of investment advisory firm RDM Financial Group. “A company is showing its confidence in growth by increasing dividends as opposed to doing a one-time stock buyback or cash distribution.”

Companies that qualify as aristocrats tend to be value-oriented blue chips — think PepsiCo PEPSICO INC. PEP -0.29% , Johnson & Johnson JOHNSON & JOHNSON JNJ 0.37% , and Walmart WAL-MART STORES INC. WMT -0.25% — as opposed to high-flying newbies.

That said, a company’s place in the court isn’t guaranteed. Banks were for many years dividend aristocrats, but many cut their payouts in the aftermath of the financial crisis.

For that reason – and for the sake of diversification – Weiner’s advice to investors interested in this strategy is to look for an exchange-traded fund (ETF) or mutual fund that focuses on dozens or hundreds of companies with track records for paying and boosting their dividends.

The SPDR S&P Dividend ETF (SDY), for example, limits its universe to stocks that have increased their dividends for 20 consecutive years. Again, this isn’t to say it’s a forgone conclusion that these companies will continue to up their payouts. As Morningstar analyst Michael Rawson notes, because the fund weights its holdings by yield, it tends to favor lower-quality midcaps and value holdings.

Another ETF in this niche, the ProShares S&P 500 Dividend Aristocrats (NOBL), focuses on companies in the index with a 25-year record of dividend increase, but it gives equal weighting to all of its holdings.

It’s important to note that investors looking for income won’t necessarily find the highest yields among this group. Again, the key is consistency, says Weiner. “The point is to find good companies that have demonstrated that they can consistently grow their businesses over time.”

Although Weiner has used passive funds to tap into this group, he thinks active management may have an advantage here. “If something big happens, managers can react faster than an index,” says Weiner, whose firm has invested in the Goldman Sachs Rising Dividend Growth fund.

At the same time the fund sticks with companies that have raised their dividends an average of 10% a year over the last 10 years, its managers look for companies with the wherewithal to continue raising dividends in a meaningful way.

You could put together your own portfolio of dividend aristocrats by using one of the above portfolios as a starting point, but Weiner doesn’t recommend that approach. Even if you did assemble a diverse mix of dividend payers, keeping tabs on these companies is practically a full-time job.

“You can’t just buy and hold, and not pay attention,” says Weiner. “Aristocrats do get overthrown.”

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