Better safe than sorry? A gentleman, about to retire, wanted to be sure he could maintain his lifestyle with his current investments. As he pulled out his retirement plan statement, his whole demeanor changed. "I can't believe I left all this money in a money market fund for the past six years," he said. "I could have done so much better if only I had invested a little of it in the stock market. I was just so afraid of losing it that I didn't do anything."
Certainly, this investor was justified in his fear of stock market fluctuations. There's always some measure of risk when investing in stocks and a chance you'll lose money. Unfortunately, however, thanks to the bite taken by inflation and taxes, you can also lose purchasing power in money market funds and other similar investments. Our investor didn't realize his money market fund was neither insured nor guaranteed by the U.S. government. Further, there's no assurance such a fund will maintain a stable net asset value of $1.
The moral of the story? To retire in the style to which he's accustomed, our investor may be forced to work longer or to invest more aggressively than he might have had he included a partial investment in stocks in his portfolio from the start.
See our tips on Wednesday, December 27 through Friday, December 29 for parts 1 through 3 of this article, and Tuesday, January 2 through Thursday, January 4 for parts 5 through 7 of this article.