Editors' pick: Originally published Nov. 3.
Retirees--who have been rolling short-term CDs for the past eight years and earning next to nothing--are about to get their wish. Interest rates may soon rise, albeit slowly.
So, for those folks who might be using their CD as a parking place from which to take required minimum distributions (RMDs), how might they go about earning a bit more on their money without putting too much principal at risk?
Stagger your portfolio by expected time horizon. How you might invest your money depends on a couple things, said Christine Benz, director of personal finance and senior columnist for Morningstar.
"If you're risk-averse or an older retiree - especially those for whom RMDs are steep - being conservative with most or all of the money is sensible," she said.
However, Benz likes the idea of staggering the portfolio by expected time horizon, especially for RMDs, diversifying across investments ranging from ultra-conservative cash investments to short- and intermediate-term bonds (including Treasury Inflation-Protected Securities, known as TIPS, or a TIPS fund) to perhaps even some equity exposure, provided you've got a life expectancy of ten years or longer.
"The virtue of holding at least some very liquid assets alongside longer-term, higher-return holdings is that if Armageddon hits the bond and stock markets, you'll be able to take RMDs from the cash holdings without disrupting long-term positions," Benz said.
For short-term bonds, she said, consider Fidelity Short-Term Bond (FSHBX) . For intermediate-term, the usual suspects include: Met West Total Return Bond (MWTRX) , Dodge & Cox Income (DODIX) and Fidelity Total Bond (FTBFX) .