My husband looked at my retirement account on a Tuesday evening, then at me, and said, “You look at that like it’s a poster for a movie you’re hoping you get cast in.” He was right. I used to time the S&P 500 bottom. I guessed 3,200; the actual bottom was 3,491. I missed it, and it cost me a few weeks of sleep I never got back.
Since then, the same three questions land in my inbox and comments a lot more often than you’d think. Stay the course or sell? Where do I park the cash I’ll need soon? And should my net worth count the taxes I’ll owe someday? Here’s what I tell people now, and what I wish someone had told me back then.
One fund that already spreads your money out
Every year a new “the best simplified fund” shows up, and every year people ask me to weigh in. The consistent part of my answer has nothing to do with which ticker wins. Asset allocation funds are the most sensible way most people invest: pick the mix that matches your risk tolerance, contribute regularly, write down what you’re doing, and stick with the plan when it gets boring or scary.
And here’s the thing about a truly diversified fund: it’s not “your eggs in one basket.” It’s the biggest basket you can buy. A global low-cost index fund holds more than 13,000 stocks, so a single position in it is honestly the end of the divisration story. Chasing one more “sleeper” fund usually just adds complexity, not safety.
“Should we sell while it’s wobbling?”
This one arrives every time a tariff headline or a recession rumor gets loud. I got an exact version of it during a market wobble a year and a half or so ago, and the same question can apply to today, and to several points in any given year when turbulence hits.
Before the worry, take a look at what actually happened. A diversified global fund was up over 20 percent in each of the two years before the wobble I got the question about. That’s abnormally high. I use a 6.1 percent expected return in financial plans because that’s the realistic number. After years like that, a pullback doesn’t make sense. It makes perfect sense.
Staring at headlines daily is hard, and I won’t pretend otherwise. But markets have been through worse — real recessions, a pandemic, a financial crisis — and eventually kept climbing up and to the right. There’s genuinely no reason to assume this time behaves differently.
And the trap people miss is that selling now and buying back later means you have to be right twice. Once when you think you’re dodging a loss, and again when you think better days are back. Nobody knows where the bottoms and tops are, which is exactly why staying the course beats guessing. Including past me, who guessed 3,200 and missed by 291 points.
Where the “cash wedge” should live
A reader asked me where to park her cash wedge to maximize interest — she was getting 2.25 percent on a high-yield savings account and couldn’t find a meaningfully better rate anywhere else. Fair question, wrong target.
The wedge I’m describing isn’t the money sitting in a regular bank account. It’s money set aside, roughly 10 percent of total retirement savings, specifically to fund upcoming withdrawals instead of selling investments when the market happens to be down.
You’re not going to beat the best savings rate with a cash fund. The point isn’t the extra yield. It’s that the cash lives inside the same retirement account, so one account handles everything. When you need the money, you sell the cash portion, not your stock. Simplicity over squeezing out a few extra basis points is a fine place to land.
Should your net worth count future taxes?
The last question was the one that made me raise of eyebrow: should a net worth statement include the taxes a big retirement account will owe someday? The question came from a man thinking about a $1 million account and whether to deduct the eventual tax hit.
A net worth is a snapshot: current assets minus current liabilities. I understand part of a retirement account is taxable. But a future tax liability isn’t a current liability. And if you want to get that granular, why stop there — why not subtract the present value of your future retirement income, and your human capital, and your projected salary until you retire? It starts sounding insane at that point, when written out.
The only exception I’ll grant: a divorce and a division of assets. In that case, a $1 million retirement account really is worth less than a $1 million house, because of the future tax bill. Knowing that tax liability exists is extremely useful, even if it never belongs on a normal net worth statement.
None of this is complicated. One diversified fund, a small cash wedge where it fits, and net worth as the simple thing it is. That’s the whole job.
Today’s version: open your retirement account, note its current balance, and write down the date you’ll check it again. Three lines, and it’ll be your new anchor.