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How Mature Investors Can Learn From Past Crises

What has history taught about the economic effects of past world crises? And how can mature investors apply those lessons to their investment behavior in the wake of September 11?

Experience shows that when share prices fell after political or military events, the immediate reaction of investors was to sell. However, in the weeks and months that followed, stocks rebounded, and the economy was up.

Steps for Action

If you are retired or nearing retirement when a crisis occurs, consider the following steps:

• Be sure you have available cash.

If you are concerned with your day-to-day cash flow, consider investing enough cash for 12 months’ living expenses in a tax-free or general money market fund or a certificate of deposit (CD) to guard against unexpected market fluctuations. Note that an investment in a money market fund is not guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency: Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

• Invest excess cash.

If you have recently inherited money or sold property, you may have excess cash flow. Now, while the market is low, may be a good time to look for buying opportunities and consider investing in the stock market. In addition, if you are over 70-1/2 years old, by law you must take your required minimum distribution on your IRAs.

• Think about your heirs.

Remember that if you should die during a down cycle and no taxes are due on your estate, your heirs can hold on to your assets in their current form to allow time for the market to rebound. If your estate needs liquidity for tax purposes, your heirs have nine months from the date of your death to do so.

• Re-assess your risk tolerance.

Are you less tolerant of risk based on the current market situation? Is this a short-term reaction to current events or a shift in your long-term investment approach? Now is the time to ask these difficult questions and to re-assess your risk tolerance.

• Evaluate your financial situation.

Ensuring your assets are properly allocated to include investments such as cash, bonds, stocks and real estate, can help reduce the exposure to risk in times of uncertainty. By reviewing your financial goals and your portfolio status, you’ll be able to judge whether you need to reallocate investments, scale back withdrawals or if you’re developing a comfortable cushion for your retirement.

• Seek the opinion of a financial advisor.

To help make sure your financial planning is comprehensive, tax-smart and includes appropriate investments, estate planning and protection, consider meeting with a financial advisor who’s knowledgeable in the six key areas of financial planning. A financial advisor can help you with retirement planning strategies by putting together a plan that’s in step with the economy and in line with your current and future needs.

February 7, 2002

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