BOSTON (CBS) – Question:  My wife and I both turn 40 this year. We have about $300,000 saved in our retirement plans. After the downturn in the market several years ago, we pulled everything out of the stock market. Right now, our money is either in money market accounts or the stable value fund in our 401(k) plans. When is it safe to get back into the stock market?

Answer:  I don’t know if it will ever be so safe that I can say you will never experience another recession. And as for bear markets, they come and go frequently. I do know that over time you will need stocks in your portfolio to give you a return that will beat both inflation and taxes.

If your money stays in your current holdings and we estimate a return of 3% over the next 27 years, it will more than double and be worth over $666,000. If you bump up your return to just 5% you could have over $1.2 million. Shall I take it to 8%? You could have $2.4 million.

Now that is without adding any new money to your accounts. What if I calculate an annual contribution of $15,000 a year for the next 27 years?

If we look at the 3% return, you would have a total of $1.3 million. At 5%, it could be $2.2 million and using the 8% your nest egg could conceivably grow to $3.8 million.

I chose 27 years because you will be eligible to collect your full Social Security then. And think about this, you could live 33 years or more retired. Someone in their 40s today needs to plan to live to be 100.

To get back into the market you could take the entire amount and invest it tomorrow or try dollar cost averaging. Here you would invest a certain amount each month. You are actually doing that with your retirement plans now. I would suggest each month for a year invest $25,000.

I would suggest a portfolio that is balanced. Stocks and bonds. Start with a 50-50 mix, 50% stock and 50% bonds. For the stock portion, 30% into a large cap growth mutual fund, 10% into a small cap fund, and 10% into an international fund. Not an emerging market fund, a diversified international fund.

For the bond portion, leave 25% in the stable value fund and put 25% in a total bond fund with an intermediate duration. Most 401(k) plans have such options and much more.

As your comfort level increases, start directing the new money into the stock portion of your portfolios. So eventually, you are at a 70-30 mix and then when you hit the magic age of 67 consider going back to the 50-50 mix.


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