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I have $600K invested, but my financial adviser has only made one trade this year, and left $7,500 in cash in my Roth IRA. Is it time to get rid of him?

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Question: My financial advisor has made one trade this entire year and has left $7,500 in cash in my Roth IRA since January. I had $600,000 in assets at the start of the year. Some minimal reallocation would have been appropriate, right?  And at a minimum I shouldn’t have any cash in my Roth, right? What should I do?

Answer: It sounds like you’re overdue for a sit down with your adviser to review your portfolio strategy and to get first-hand answers to your questions. Indeed, an adviser should make clear to you under what circumstances they’ll make changes to investment accounts and what their firm’s process is for making sure money isn’t sitting in cash and is getting invested, says certified financial planner Daniel Forbes of Forbes Financial Planning. “Ask the adviser to clarify these questions,” says Forbes. (Looking for a financial adviser? This tool can help match you with an adviser who might meet your needs.)

That doesn’t mean your financial adviser should be tinkering with your accounts all the time. Indeed, Vanguard recommends rebalancing every six months or so, while Morningstar’s Christine Benz says to do it every year, though others recommend monthly. And some pros say it’s common for some advisers to only rebalance on an annual basis. “More than anything, I suggest you ask your adviser for a discussion or an explanation,” says certified financial planner Steve Zakelj of Flatirons Wealth Management. That all said, again, your adviser was remiss in not communicating his or her strategy to you.

Have an issue with your financial adviser or looking for a new one? Email picks@marketwatch.com.

Here’s the other question: How much would the rebalancing have benefited you — or not? “Surprisingly, there is so much correlation between stocks and bonds this year that there isn’t nearly as much opportunity to rebalance as one might think. If bonds were up, or even flat, there might be some chance, but as bonds are down as well, the opportunities are limited,” says certified financial planner Charles Green of Springboard Asset Management. (Looking for a financial adviser? This tool can help match you with an adviser who might meet your needs.)

And as certified financial planner Jarrod Sandra of Chisholm Wealth Management notes: “When everything moves in tandem, it doesn’t provide a lot of opportunity. If the portfolio only consists of 3 to 5 funds, then perhaps they haven’t moved outside of the ranges to allow for reallocation or rebalancing,” says Sandra.

So what about that cash in your Roth? Some pros say it isn’t necessarily concerning that there was cash in your Roth IRA, depending on your exact circumstance:  “Are you saying you had $600,000 in your Roth IRA? Or are there other accounts? If you have a $600,000 Roth IRA with $7,500 cash, I’m not sure I’d be upset,” says Zakelj. Indeed, many firms or advisers like to, or are required to, maintain a 1-2% cash balance at all times. “Given that stocks and bonds are down this year, having money in cash was most likely the best place to be,” says Zakelj.

Zakelj also adds that he would want to know if the other account is a taxable account where rebalancing may create negative tax consequences. “What assets are you invested in? Some investments don’t allow for shorter-term rebalancing,” says Zakelj.

It also may depend on the age of your Roth, some pros say. There’s a 5-year rule on Roth conversions that requires you to wait before withdrawing any converted balances, contributions or earnings, regardless of your age; so depending on your other cash reserves, it might have been prudent to keep a modest amount of this investment as cash because you would be able to access these funds in case of emergency, pros say.

“If you have other sufficient emergency assets, these funds should be invested. That said, holding it as cash has probably saved you some money this year,” says certified financial planner Danna Jacobs of Legacy Care Wealth. And certified financial planner Charles Sachs points out that, “Since RMDs are not required for Roth’s, I would think that account would be invested to hold the highest expected return asset within your portfolio.” 

But this still comes back to the question of communication with your adviser: You didn’t know what he or she was doing and why, and that’s a problem. If you can’t remedy that situation to your liking, find someone new. (Looking for a financial adviser? This tool can help match you with an adviser who might meet your needs.)

Have an issue with your financial adviser or looking for a new one? Email picks@marketwatch.com.

Questions edited for brevity and clarity.

The advice, recommendations or rankings expressed in this article are those of MarketWatch Picks, and have not been reviewed or endorsed by our commercial partners.

Credit: marketwatch.com

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