Here’s a story that I’ve watched unfold many times in my conference room. Do you recognize yourself, or perhaps your parents?
She made a lot of money
I sat with a new client, a woman whose husband of over 50 years had handled all of the money decisions, and she proudly told me about all of the successful stocks that he had chosen. Though she could name most of the companies in the portfolio, she didn’t know much more about them. “We made so much money with these stocks!” she said. I asked if she thought her 100%-equity portfolio was aggressive, and she said, “Certainly not. My husband only bought conservative stocks.”
She could lose her fortune overnight
The first thing I had to point out to her was that there is no such thing as a “conservative” stock. As someone who helps people handle their U.S. brokerage and IRA accounts, I explained that every stock can, and sometimes does, drop. Just look at how some of the largest companies fell over 50% in the 2007 crash.
What would happen if her stocks dropped?
Next, I focused on her goals. She lives in a protected living community that she loved and her main goal was to continue to be able to afford the monthly fees. If her portfolio dropped in value, she would have to move out. On the other hand, if she sold her stocks now and moved the proceeds to safer investments like quality bonds or bank deposits, she could withstand a shakeup in the stock market much better.
What’s more important than profits?
Don’t concentrate only on potential returns when designing your portfolio. Instead, figure out what you really want – in her case, her #1 goal was to remain in her current living facility – and then set up your investments to maximize your chances of being able to live your dreams.
Please let me know if you have a similar story that you can share: doug@profile-financial.com
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published July 27, 2015.