Erik recently turned 60 and still works. Erik is responsible with money: He pays his credit cards off in full each month; he carries no other consumer debt; he holds a small mortgage, and he and his wife, who also works outside the home, take one significant trip a year. They have children and grandchildren who live nearby.
In every respect Erik is a regular baby-boomer who is waiting for the moment he can let go of feeling he has to work and pursue his outside interests of travel, hiking and woodworking. Erik watches the news on TV every night and this is usually where my conversations with Erik begin.
Erik: What will you do to our portfolio?
Donald: The same thing I'm doing to my portfolio and that of other clients: Holding tight and investing all of the extra cash, because prices are down, not because of loss of intrinsic value but because of fear, which will pass.
Erik: What do you think about putting all savings going forward into cash?
Donald: Buying now means paying less per share. It's like things are on sale, valuable things. Besides we don't time the market and you shouldn't. How do you know when to get back in? After prices have risen?
Erik: All this money going into our 401(k)s and not making anything is driving us crazy.
Donald: You don't lose unless you sell. Right now you're buying at reduced prices, which is a good thing. Remember buy low, sell high.
Erik: Does it make sense to keep pouring in money in this financial climate?
Donald: Yes. As a wise economist recently stated in giving his audience what he called a hot market tip, "You want to be fully invested in the market at the bottom."
Erik: Lots of questions, but we are really concerned.
Donald: You should be, but you don't want to act out of emotion, which is driven by spending too much time listening to the financial drama in the news.
Note: The preceding is a hypothetical case study and is for illustrative purposes only. Actual performance and results will vary. This study does not represent actual clients but a hypothetical composite of various client experiences and issues. Any resemblance to actual people of situations is purely coincidental.
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Donald E. Askey is a certified financial planner and a registered investment adviser with Provident Financial Advisors, located at The Provident Bank in Amesbury and Newburyport, and a registered representative offering securities through Commonwealth Financial Network, member FINRA/SIPC. For your money-related questions write planning@providentfinancialadvisors.com or call 877 815 8500.
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