Expert: Gina Boykin - 2/11/2009

Question
Hi Gina,

I talk to my Mom once per week. She lives 3 hrs. away & is 89 years old. She has around three hundred thousand dollars tied up in the Edward D. Jones Co.

When we talk about the economy, she tells me her portfolio has sure suffered some. I told her she might be better off just transferring all or most of her stocks and bonds into safer C.D.s and Treasury Notes and transfer them back into stocks/bonds when & if the economy rebounds. She says, "C.D.s & treasury notes don't pay anything though." She says maybe if she holds on to the stocks/bonds they'll go back up if the economy ever straightens out.

If you were her, would you leave your portfolio "as is" in the Edward D. Jones Co. or do as I suggested to her? Would you please tell me the advantages of remaining in her present portfolio?

Thank you greatly.

Mike E.

Answer
In general, any money that is expected to be used within a short time-frame (less than 10 years), should NOT be in the stock market.  I assume, based on her age, that she's going to need some of that money sometime soon?  If so, the money should come out.....However, there is definitely room for compromise.

Taking that money out makes those losses "real" to her.  The losses are real regardless, but I know that taking that step may be hard.  Here's an option:  Take 2/3 of the money out and place them in long-term CDs.  Leave the other 1/3 of the money in.

In approximately 10-11 years, the money in the CDs will have grown to the original total amount. (In your example of $300K, putting $200K in CDs for about 10-11 years, the CDs will grow to $300K).  This means that even if the money in stocks/bonds completely tanks down to $0, she will have what she started with.  However, if the stock market does well over the next decade, she will be able to participate in the upswing, and will feel better about recouping the losses she has endured.

The only advantage to keeping all of the money in her portfolio is that she will be able to fully participate in any upswing. However, keep this in mind - interest rates will go back up at some point.  When they do, those bond funds will decrease in value which will partially offset the gains she may have in her stocks.