Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

03/16/2009
Should I pull my mother's investments from the stock market?
My situation is as follows: Three years ago, my then 60-year-old mother wanted to put her entire life savings (30k) in a savings account at her bank. I talked her out of it, and convinced her to let me invest it. Something I now regret. I have 61% in Bond/income funds and 39% in Large Cap Equity/Aggr Bond. I am watching the account lose money each quarter.

My question is this: Should I pull everything out of the investment account now and stick it in the bank to slowly build back up? Or should I leave it alone and hope that it recovers by 2010?
Editor's Note:
Wi$eUp does not provide investment advice. You should seek the counsel of a personal financial adviser. We can tell you that the experts who responded to your question had different opinions about what to do. Their comments included the following observations which you may find useful in helping you decide what to do:

• Relevant factors that would need to be considered in deciding what to do include how much the account is down to, whether your mother needs income from the account, and, if so, how much and when.

• Another relevant factor that needs to be considered is how near the mother is to retirement.

• Many CDs aren’t paying much.

• It’s unrealistic to think that the account will recover in one to two years. It depends on how much was lost.

• Generally, it is not a good idea to pull money out of investments when the market is down. Most people want to pull their money out during market downturns and put it back in when the market recovers; however, this is contrary to the investment philosophy of buying low and selling high.

• Money in savings accounts does not have market risk (the possibility that what you invested will decrease in value); however, money in savings accounts has inflation (purchasing power) risk. Even if you don’t lose the money you put in a savings account, it will probably not keep up with inflation.

• Putting the money into a low-yield savings account will not grow it soon enough if the mother plans to retire soon.

• The 10-year average return for these funds is 12%.

• It depends on your risk appetite. If you think of the loss as a paper loss because the investment could increase in the future, you could hold on to it. If you think the investment will decrease further, you might want to sell it.

• The money should be invested for the timeframe in which it is needed. If she will need the money next year, find something that will give her the best safe return in 1 year. If she only needs a portion next year, then invest that portion for 1 year and the rest to match the time it is
needed.

• Markets are cyclical and will rebound over time. The issue is when.

• The daughter could add to the fund to help cover some or any losses incurred.

• If the investment is also an emergency fund, there should be some cash to fall back on in a pinch. One option would be to let the investments sit and for the daughter to use her own emergency funds to help her mother if she needs them and another option would be to sell, if needed, but to do it in small portions over time - 1/12th of the portfolio every month. The latter allows having some cash on hand if needed, while giving the market time to come back. The daughter should try to avoid any sweeping changes to the portfolio.