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Originally published Sunday, January 19, 2014 at 8:01 PM

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Having your savings in cash isn’t a plan | Scott Burns

You may be able to escape (or at least reduce) your fear of investing by remembering that it is unlikely that you would ever need all of your money in the same day or week.


Syndicated columnist

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On the other hand, if you are as conservative as I am, you can invest your money in a C... MORE

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Investing

Q: I have $436,900 in cash in my TD Ameritrade retirement account. It has been in cash since my former company disbanded and the retirement account was rolled over five years ago.

Because I have been afraid of not having investment skills, it has remained in cash.

I am 59 years old. My occupation for the last 18 months is housewife. Can you give me a way out of this fear?

A: Being in cash for five years means you’ve paid a very high price for fear and indecision. But you know that.

If you had been invested in a simple, traditional balanced fund that was a 60/40 mixture of stocks and bonds — such as the Vanguard Balanced Index fund that I mention regularly — your investment would have nearly doubled over the last five years. The recent five-year annualized return was 13.23 percent.

Will you do as well over the next five years? Maybe. Maybe not. The only thing we know for certain is that cash earns nothing, the purchasing power of our money is declining about 2 percent a year, and many economists believe that more inflation, not less, would be better.

You may be able to escape (or at least reduce) your fear by remembering that it is unlikely that you would ever need all of your money in the same day or week.

So while some portion of your money can be held in cash and be immune to major market losses, another portion of it can be held in stocks because the only time its value is important is in the future.

And the longer you own a broad portfolio of stocks, the greater the odds that it will provide a positive, inflation-beating return.

Among money managers a portfolio that is 40 percent stocks is considered quite conservative.

So suppose you go conservative and then some — suppose you put one-third of your money in cash, one-third in short-term inflation-protected securities and one-third in stocks.

Two-thirds of your money would be quite safe and one-third would be subject to major market ups and downs.

Could you tolerate that?

If you can, you have a way out of your fear. If not, make it still more conservative.

There has to be some level, however low, where you are willing to put some money at risk in the pursuit of a return that is higher than inflation.

Questions: scott@scottburns.com

Copyright 2014, Universal Press Syndicate



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