As an investor, Mohamed El-Erian has always tried to avoid what he calls “unpleasant choices.” He faced his own tough career choice earlier this year when he decided to resign from his job as chief executive and co-CIO of bond giant Pimco. Today the onetime manager of Harvard’s endowment sees nothing but hard decisions for investors. Market conditions have stumped him as he contemplates where to invest his own nest egg, much of which is still sitting in his old Pimco 401(k), with 60% in stocks and 40% in bonds. “You can no longer depend on the bond market as the main driver of a high retirement income,” he says, citing the low yields that make bonds an expensive risk to take. Meanwhile, stocks have run up so much that he’s not sure how much further they can go.
The 55-year-old El-Erian isn’t retired yet. He’s serving as chief economic adviser to Allianz, leading President Obama’s Global Development Council, and working on a book (as well as contributing to Fortune.com). But the cautious investor says he thinks about retirement “a lot,” and has for a long time, “because that’s the sort of person I am.”
For El-Erian, sleeping well these days means watching patiently from the sidelines: He’s allocating new income to cash and keeping more on hand. “Does it mean I’m forgoing future returns? Yes, it does, but that’s a risk I’m willing to take,” he says. He’s also keeping the powder dry for when the right “riskier” opportunity comes around.
This story is from the June 30, 2014 issue of Fortune.