Warren Buffett, the second richest man in America, says if he dies before his wife, she should invest her money in Vanguard’s Index Mutual Funds. That’s a conservative investment that isn’t likely to go far wrong but is it advice for everyone? A danger exists in being too conservative. In the case of retirees, I understand why they want to minimize risk. As Allen Roth, columnist for Money notes, “The thought of flipping a switch and spending down that portfolio is very scary. “ (“Look Beyond High Yields,” by Allen Roth, Money Magazine, September 2016, pg. 38.) Sticking to stocks in Standard and Poor’s, the Dow or the NASDAQ keeps money on a par with the market, at least.
Courtesy of stocktwits@stocktwits.com
Nonetheless, being too conservative gives an investor little chance to get ahead, particularly during a slide when value stocks like GE or Proctor&Gamble sell at bargain basement prices. To take advantage of fire sales, a person needs a little cash. Buying low and selling high extends the life of a retirement portfolio. Dividends alone rarely can do that.
Having the flexibility to follow turns in the market is a plus in my opinion and that’s why I choose to work with a stockbroker rather than park my money in an index fund. During the Great Recessions of 2008-9, I didn’t panic when valuations tumbled. Instead, I took my broker’s suggestion. I bought a few choice stocks. Doing so left me well positioned when the market recovered. True, I shell out a premium for investment advice, but I prefer it to making costly mistakes. My broker isn’t infallible. No one is. Over time, though, he’s earned his fees.
Two questions are crucial when making retirement plans. First, where is it safe to put your money? Second, how safe do you need to be? To answer the last question, a broker can help. If he or she is honest and comes with good recommendations, I’d say don’t sweat the fees.
