Can I Keep all of my Roth IRA in a Money Market Fund?

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ruanddu
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Can I Keep all of my Roth IRA in a Money Market Fund?

Post by ruanddu »

I would appreciate it if you could indulge a question that might seem pretty strange. Can I sell off all of my Vanguard Index funds held in my Roth IRA, and move to something like a money market for a duration of time that I am not sure of at this point? Reason being is I am no longer sure about investing in the stock market at this time due to it's high volatility. Over time, I might change my mind but in the meantime thought I would see if moving money to a money market or something essentially more risk-free is an option as a place holder until I figure out what I want to do long-term.

Thank you.
SpookyKG
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by SpookyKG »

Yes, there is mechanically nothing stopping you from capitulating, flailing around with your money, and market timing.

Philosophically - there are many things that would encourage you to not try to market time, to capitulate, or to flail around. You should have an all-weather asset allocation you can live with in the good times and the bad times.

But no, nothing stopping you from making that decision that historically is likely to do worse than having a good plan and staying the course.
terran
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by terran »

Yes, you can. Whether or not you should is, of course, another question that you haven't asked. Please consider the guaranteed risk of losing value to inflation with anything held in a money market account.
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cchrissyy
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by cchrissyy »

it's a mistake but the answer is yes you are free to do that
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rakish_weasel
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by rakish_weasel »

Yes, you are allowed to trade within a tax-advantaged retirement vehicle without ever incurring a taxable event. This includes selling funds and keeping the proceeds in a money market fund, or it can mean purchasing different funds altogether -- the choice is yours. Just be aware that making decisions like the one you're suggesting, is largely a case of 'market timing' -- ie, "no longer sure about investing... at this time due to its high volatility". Attempting to time the market is largely a fool's errand in the big picture -- the general wisdom is to stay invested for the long haul.

You do indicate that you want to "figure out what (you ) want to do long-term"... this should include, in large part, a determination of what your desired AA (asset allocation) should be, based on your comfort level, risk tolerance, and retirement horizon. You don't mention your age or the size of your funds, but generally the further one is from retirement the more time you have to withstand market volatility and ups/downs, and the more one benefits from simply staying invested in the market, and continuing to save/invest further. The closer one is to retirement, a closer look at desired AA (what % bonds? etc.) and gradual shift towards capital preservation is frequently seen.

If you provide more details, especially in the correct/template format provided in the Bogleheads' wiki, of your age, marital status, and financial details, then we will be able to proffer more-granular advice for your specific situation.

Regards,
-rw
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KingRiggs
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by KingRiggs »

You appear to have joined Bogleheads almost 12 years and 300+ posts ago...

The recent market has been relatively tame, IMHO...


But you do you...
Advice = noun | Advise = verb | | Roth, not ROTH | | "Remember, there's always money in the banana stand." - George Bluth, Sr.
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Mullins
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by Mullins »

ruanddu wrote: Wed Jan 19, 2022 2:23 pm until I figure out what I want to do long-term.
Perhaps it might help to figure that what the short term's doing isn't relevant to the long term?
"The Quality of the Answer Depends on the Quality of Your Question."
wetgear
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by wetgear »

You can but you shouldn't.
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Candor
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by Candor »

As others have already said, you certainly can but you will likely come to regret it. Jumping back and forth into the market with 100% of your account is a losers game. Don't get caught up in the short-term noise of market movements if this is long-term money.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
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arcticpineapplecorp.
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by arcticpineapplecorp. »

ruanddu wrote: Wed Jan 19, 2022 2:23 pm Reason being is I am no longer sure about investing in the stock market at this time due to it's high volatility. Over time, I might change my mind...
The market is always volatile so time won't change that.

What would make you change your mind? When the market goes up instead of down?

Do you think buying at a higher price is a good thing?

What you need is to determine your need, ability and willingness to take risk.

How much risk do you need to take: https://www.cbsnews.com/news/asset-allo ... -you-need/
How much risk do you have the ability to take: https://www.cbsnews.com/news/asset-allo ... -you-take/
How much risk do you have the willingness to take: https://www.cbsnews.com/news/asset-allo ... tolerance/
How to deal with conflicts between the need, ability and willingness to take risk: https://www.cbsnews.com/news/asset-allo ... ing-goals/

calculate your worst loss based on your allocation and assuming a decline of 50% like in the Great Recession:

Image

if the loss on your current allocation is greater than you're willing to bear, then perhaps you should change your allocation down to the point where a loss will not cause you to lose sleep (or be nervous in your case).

Once you've done that you're ok with the volatility because it has a large or small effect based on the amount of risk you've chosen.

It's not all black and white, 100% or 0%.

Also please read this article by Larry Swedroe called Better to face the correction":
https://www.etf.com/sections/index-inve ... nopaging=1

You'll see why More money has been lost in anticipating the corrections than in the corrections themselves
Last edited by arcticpineapplecorp. on Wed Jan 19, 2022 9:22 pm, edited 1 time in total.
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Alto Astral
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by Alto Astral »

How much money do you have in your Roth IRA? How much would this conversion impact your desired asset allocation?

I can see one scenario where this would make sense:
1. You are using the Roth IRA as an emergency fund. AND
2. This is ~3 months of your living expenses, say ~10K. AND
3. You would like to be able to withdraw contributions in case of an emergency (and hence don't want the markets tanking impact contributions)

If all 3 above are true, then the impact of converting is minimal and maybe even necessary.

However, if you have a large amount relative to your AA in the Roth IRA, it may have a adverse effect on your retirement plans.
Topic Author
ruanddu
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by ruanddu »

Thanks everyone. I appreciate your insights.
moneyflowin
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by moneyflowin »

6-11% pullbacks happen all the time. We had one only 10 months ago. I expect 25-30 more over the next 30 years; yes that's how common they are

If you're going to debate this every time we have such a pullback, you really shouldn't be in equities.
260chrisb
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by 260chrisb »

Of course you can! But why now?
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Eagle33
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by Eagle33 »

When will you need to spend the money in your Roth? Short term money does not belong in equities. Remember that you don't have to sell 100% of the Roth equities if not all of the balance is needed in the next 0-10 years. Cash may be okay for 1 or 2 years, then bonds should be used maybe up to 10 year needs.
WhiteMaxima
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by WhiteMaxima »

for how long? inflation is 7% or more now. MM interest is only 0.25-0.75%. only equity and real asset can beat inflation.
jand87
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by jand87 »

Piling on that yes you can but also an awful idea unless your balance is well beyond the amount you’ll need the rest of your life and more.
slickracer
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by slickracer »

There will never be a "right" time to get back in.
jand87
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by jand87 »

slickracer wrote: Sat Jan 22, 2022 8:45 am There will never be a "right" time to get back in.
This is correct. I believe there’s a thread on here about a guy who got nervous during March 2020 and sold. And then of course missed the bounce back.

I have a close friend who switched his stocks to bonds in late 2020 after the climb back. He feels everything is a bubble and going to pop. He has yet to buy back in.
SnowBog
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by SnowBog »

Saw this in another thread viewtopic.php?p=6465700#p6465700

This was too good to not repost, and IMHO applicable to this thread as well.
arcticpineapplecorp. wrote: Fri Jan 21, 2022 1:18 pm
NabSh wrote: Fri Jan 21, 2022 12:17 pm I have set up a weekly investment to total market fund in my brokerage account.
So everyone knows that the market has been down recently. The bear market messengers have been calling for a Buble for a while.

So far I have kept the course. But I have thinking about having new weekly investment go to a cash position for a while.
can you define "a while"?

how will you know when to invest?

if the market keeps dropping, fear has increased (thus people are selling). Do you honestly think you'll be happy to invest when there's maximum fear?

do you have a percentage the market will need to fall in order to deploy cash?

what if the market falls, but not by that much and then goes up and you missed out and will be buying at higher not lower prices?

this happened a few years ago (2018?) when people on bogleheads actually said they were waiting for a 20% decline to buy in, yet the market went down 19% and then went up like 30% the following year. Whoops! :oops:

here's what active investors tend to do:

Image

this is what you should do:

Image

and this:

Image

have you read the Swedroe piece Better to Face the Correction? If not, you should. You'll see why investors lose more money anticipating corrections than in the corrections themselves.

what do you think?
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MNGopher
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by MNGopher »

Roth "space" is valuable. You should place funds with the highest expected risk/return in your Roth IRA, because they are sheltered from taxes and capital gains. If you want to increase your cash holdings, just do that in a bank.
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KingRiggs
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by KingRiggs »

My oldest child recently had the opposite problem:

Made a $3k Roth IRA contribution in 2020 (matched by the Bank of Dad for an additional $3k), followed by another $6k for 2021. She went to make her 2022 contribution, and realized that only the initial $3k had actually been used to purchase her desired mutual funds. The other $9k had just been sitting there, making 0.01%! She was distraught to have missed out on about $3-4k in growth, but I told her that was a small tuition payment to the School of Hard Lessons -- Guessing she will never make that mistake again!
Advice = noun | Advise = verb | | Roth, not ROTH | | "Remember, there's always money in the banana stand." - George Bluth, Sr.
Topic Author
ruanddu
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Re: Can I Keep all of my Roth IRA in a Money Market Fund?

Post by ruanddu »

Late reply here but thanks again everyone for all your insights! I really appreciate it. I have stayed put and kept my current Target Date Vanguard Fund. Thank you.
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