I’d really appreciate some perspective.

I’m in my early 40s and I have about $330,000 invested in an inherited retirement account (it’s been invested for around six years). The portfolio has grown, but I can’t help feeling that it hasn’t grown as much as it could have. My allocation includes a mix of exchange-traded funds (large cap, growth and mid/small cap) and mutual funds, along with a bond fund. Overall, the performance seems moderate, but not what I would expect given the time horizon.

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Here’s where I’m struggling: I’m trying to think long term (15 to 20 years). I’m a parent, and my child requires lifelong support, so building a stronger financial future is important. I question whether my portfolio is too conservative for my age and goals. I partly feel like I should be more growth-oriented, even if that means taking on more volatility, and then shifting to a more conservative strategy later, maybe in 10 years or so.

I’m not looking to take reckless risks, but I also don’t want to look back and feel like I left a lot of growth on the table. Would you consider reducing bond exposure at this stage? Are mutual funds still worth holding, or would you lean more toward ETFs for long-term growth? Does it make sense to simplify and focus more heavily on growth-oriented allocations? Any insight or personal experience would really mean a lot.

A Father

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This is a very timely and welcome inheritance.

Because you’re now in your 40s and may need this money to support both you and your son, aim for 2% to 3% withdrawal, preserve capital for your son’s care, and consider setting up a special needs trust and an ABLE account (Achieving a Better Life Experience), which allows individuals with disabilities to save up to $100,000 without losing government benefits. With a 7% annual return, you would have approximately $1.28 million in 20 years; with a 9% annual return, you would have closer to $1.85 million. Adding $1,000 a month from your own resources would add roughly $500,000 by the time you’re in your mid-60s.

Given your age and your willingness to maximize growth so you can turn this $300,000 into a lifetime sum that yields returns into retirement, a 60/40 stock/bond allocation would be conservative to moderate, and an 85/15 stock/bond mix would be more aggressive. But there’s no absolute correct answer. The right allocation goes further than the usual risk tolerance. A 20% to 30% bond allocation at age 40 would be reasonable for some investors, especially those with ongoing financial responsibilities, while others may hold less than 10%.

As for maximizing your retirement fund: In addition to diversifying among large, medium-size and small companies, most advisers suggest that at least 30% of your portfolio should be invested in international stocks. That’s a guideline, as always, not a rule.The technology sector, particularly the “Magnificent Seven” group of megacap stocks, has seen a surge in value over the last decade or so. My colleague Philip van Doorn recently wrote that, despite this surge, it’s still a good time to invest in tech stocks, many of which have benefited from the rise of artificial intelligence.

Consider after-tax Roth contributions — if you’re eligible — or doing a Roth conversion if you have a traditional IRA or 401(k). Conversions are best carried out when your income is lower — that’s usually after you retire and before you start collecting Social Security and taking required minimum distributions from your retirement accounts. Otherwise, you will have to pay income tax on the traditional IRA or 401(k) when you start making those required minimum distributions at age 73. RMD rules depend on the account type and the kind of inheritance, which I’ll get to later.

T. Rowe Price says that someone in their 40s should aim to have several times their salary saved — however pie-in-the-sky that goal may appear. The investment-management firm says that “45-year-olds should have 3 times their current income set aside for retirement. This savings benchmark rises to 5 times current income at age 50 and 7 times current income at age 55. Fortunately, there’s still time for even modest adjustments to have a large impact down the road. If possible, aim to contribute the maximum amount to your retirement accounts.”

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You first want to make sure that you can invest the entirety of this inherited account. If you inherited a brokerage account or ETF or mutual fund from someone other than your spouse — say from a parent, a friend, a cousin or a sibling — you are free to do pretty much what you want with this $300,000 if you have inherited a taxable brokerage account. You would not, however, have the freedom to chase profits with a retirement account like an IRA — and in order to mitigate risk, that may be a good thing.

If you inherited a 401(k) or IRA retirement account from someone other than your spouse, you won’t be able to roll it into your own retirement accounts. Most nonspouse inherited IRAs are subject to the Secure Act’s 10-year withdrawal rule, but there are exceptions, depending on whether the original owner had started taking RMDs and whether the beneficiary is an eligible designated beneficiary.

Assuming you’re not the spouse of the original owner and you are indeed dealing with an IRA or 401(k), you have a couple of ways to access the funds without penalties. You can use the 10-year inherited IRA option, which allows you to withdraw the money anytime up to Dec. 31 of the 10th year after the year of death of the original owner, with the account fully distributed by then, or you can take the entire amount as a lump sum, although this could push you into a higher tax bracket.

There is also a third alternative: If the late owner had already started taking RMDs, new rules that went into effect in 2025 state that a nonspouse who inherited the IRA must take an RMD each year, beginning the year after the original account owner’s death. This applies to accounts that have been inherited since 2020. These RMDs are subject to the 10-year distribution rule, meaning the account should be emptied by the 10th year after the owner’s death. Always double-check the latest guidance from the IRS.

ETFs and mutual funds are both vehicles that spread your investment across a broad mix of assets, sectors and regions, making sure you are diversified and thereby reducing the risk of sudden or long-term losses. Some investors prefer ETFs because of their lower costs, tax efficiency and ability to be traded throughout the day. (I assume, however, that you are already dealing with a tax-advantaged account.) Mutual funds are better suited to those looking for hands-off, long-term investments and not interested in trying to time the market. They work well with, say, 401(k)s.

Active strategies seek to generate higher returns than the S&P 500. “ETFs can sometimes offer greater flexibility and control to investors, as there is more transparency around price as well as the ability to execute immediately,” according to T. Rowe Price. “The other key benefits of ETFs include tax efficiency, as they generate fewer taxable events than mutual funds, as well as lower costs. Both offer exposure to professionally managed portfolios designed to support a variety of investment strategies.”

Don’t get distracted by “ETF vs. mutual fund” debates.

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