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Should I move to all cash?

Posted by Cheryl Costa  November 10, 2008 09:20 AM

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My husband has Alzheimer's Disease. He's been living in a Memory Care facility for three months. He is 82 while I am 64 and just retired. Between us, our portfolios have dropped in value over 25 percent. We do not have many years ahead of us to recoup our losses. I think we should contact our broker and sell everything and put our money in CD's. Should we close out our accounts?

A big market downturn is scary for everyone and it is especially scary for new retirees. I totally understand your wanting to move to the safety of cash but I urge you to not do anything in haste. As many advisers say: "panic is not an investment strategy."

Your husband is 82 but you are only 64. You can reasonably expect your retirement to last for 25 to 30 years. In order for your retirement assets to keep up with the effect of inflation, you will likely need some allocation to equities (stocks). I can't say what allocation is appropriate for you because I don't know enough about your particular situation. But the odds are good that you need at least a small allocation.

Selling everything now and moving to cash will simply lock in your losses and, once you are in cash,how much can you earn? Very little over the long term. And, to add insult to injury, you would likely be falling behind once you account for the effects of inflation.

Furthermore, once you are in cash, you need to be able to tell when to get back into the market. If you are scared of the market, there is a good chance that you will wait too long and miss most of the run-up in the market when it does eventually happen.

All this being said, if you find yourself unable to sleep at night and consumed with anxiety about what is going on in the market, you may be more risk averse than you thought and maybe it is appropriate to ratchet down your allocation to equities. If this is the case, I would consider lowering your stock allocation over time. Consider selling a certain percentage each month until you are at a level that you feel better about.

"Switching to Cash May Feel Safe but Risks Remain" is a great article. Check it out.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
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