When a more aggressive strategy is needed for your retirement money

Q: We just put $15,000 into a Certificate of Deposit that pays 3.75 percent interest on a one-year term. Is there any other investment we could make with that money that would be a "safe" investment? We are in our 50s and part of this money is for retirement. I also have a 401(k) with investments in mutual funds and blue-chip stocks that has grown very well. When that $15,000 certificate comes due, can we add that money to my 401(k)?
D.S., via e-mail

A: If you need any of this money in the next year or two, then Steve Doucette, a certified financial planner in Wellesley, Mass., suggests you consider a money-market mutual fund or Internet bank savings account. Many options are available that protect your principal, pay higher interest rates, and have no minimums or early withdrawal penalties.

But if this is meant for retirement, Mr. Doucette thinks that the money should be invested for the long haul. In that case, it would be better off in a diversified portfolio of both stock and bond mutual funds. You may experience some ups and downs along the way with this type of portfolio, but over time you should end up in a much better position than what a CD can deliver.

At your current age, you may need this money to last another 40 years or more. With that time frame in mind, it becomes even more important to make sure that your retirement dollars are invested for growth instead of parked in CDs.

Without knowing the details about your 401(k) plan, Doucette can't determine if you can move money into it. If the CD is already inside an IRA, it may be possible to then tuck it into your 401(k). But even if that's the case, it's generally a good idea to leave it in the IRA. With the increased number of investment choices available in IRAs compared with 401(k)s, it will be easier to create the successfully diversified portfolio you need for your retirement money.

Q: I have spent the last six years paying off considerable credit-card debt. Last month, I sent off my last payment on my last credit card, and I'm now wondering what the next step is. I have a mortgage, and an old car that needs to be replaced soon, but no loans or other financial commitments.
L.D., via e-mail

A: At a time when the nation's average savings rate is negative, certified financial planner Richard Vodra, of McLean, Va., applauds you for sticking with a savings plan for the last six years.

Your success also means that you've gotten used to living on less than your income, freeing up the money to pay off those credit cards. Much as you might be tempted otherwise, stay with that habit, advises Mr. Vodra. You should estimate what the monthly payment might be on a replacement car, and start saving that amount now. When your present vehicle finally dies, he says, you'll have a down payment for the next one. "You should always have a car payment in your budget, either going into savings or to a bank or credit company," says Vodra.

Finally, build a cushion for yourself. Save at least 10 percent of your income, he advises, and divide that between retirement money, a short-term emergency fund, and a longer-term opportunity account. Your opportunity account can help pay for a career change, a special vacation, or just a good sense of security. And please, he says, "keep your credit cards paid off every month!"

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