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The “S.W.A.N.” Principal: Are You an Investor or a Saver?

Posted by Keith on May 8, 2007 at 11:04 am  

Keith,

My wife and I received $550,000.00 from her father when he died 10 years ago. Since than we put the money in 5 year CD’s. The first 5 yr was paying 8.5% and the 2nd coming due this summer paying 6.5%. My wife is afraid to invest because this will be the only money we will ever have so if we lose any it will affect our income. Over the last 10 years we have earned around $50,000.00 including our Social Security income & her part time job. We both took early SS (I’m 64 & she’s 63) We have no other income and our house is paid for.

My concern is inflation!! What advice do you have for us. Thanks.

Art

PS you’re taking this great trip without your family…How did you get away with it?


ART,

I’ll respond to your P.S., below, but first let’s answer your financial question. The real issue is this: Are you and your wife investors or savers? Unless you had invested in only tech stocks ten years ago, there is little doubt that with a well balanced portfolio of stocks, bonds and mutual funds, you would likely have done substantially better than the interest rate growth your received from your CD’s.

However, the market value of your investments would have fluctuated. You would have experienced good and bad days, months and years. And if those natural fluctuations in value had kept you or “Mrs. Art” up at night, then the additional return might not have been worth the angst. Either or both of you may be a “sleep well at night” (S.W.A.N.) investor. If you are, don’t fight it. Stick with what you know and make do with reduced purchasing power later.

While with CDs you know you will not lose the original invested amount, the interest earned, after taxes, barely keeps you ahead of inflation, if at all. “Going broke safely” describes what happens to “SWANS” when, after taxes, their CDs fail to beat the rate of inflation.

The good news is that deciding whether to invest (rather than save) is not an all or nothing decision. For example, you could take half the money, and invest it in a well balanced mutual fund portfolio of stocks and bonds. There are certainly more sophisticate alternatives as well, but I sense a need here to keep it simple.

Get with an experienced adviser who will take the time to thoroughly understand your apparent low risk tolerance. Let me also remind you that regardless where you live, Art, I can hook you up with an appropriate adviser through our “Free Consultation” program. Just click on the box on our home page, and complete the very short form on the “Free Consultation” page. It just takes a minute. I’ll then arrange for an experienced reputable to meet with you at no cost or obligation. Incidentally, a good adviser may help gently “sell” Mrs. Art on the fact — and it is a fact — that long term you will be better off with some equity and bond investments, in addition to your CDs.

I hope all this helps.

Now, about my family: In a very real sense, they are with me, and I am with them, every day — and we are cheering each other on. We talk every day, and have made elaborate plans to get together while Dad is on his Global Adventure. I receive videos of my son’s basketball games (They defeated their arch nemesis, The Gym Rats, by one point this past Saturday!), emails and text messages from the entire family daily, photographs of my grandkids, and nothing but encouragement from all of them. My wife, children and grandchildren monitor our progress every day, and as they do, they learn tons about our planet’s geography, and the people on it. This is definately a family project. I invite you to find my blog from March or February, I forget which — just scroll through the blogs — where I discuss all this in more detail

Thanks for your question, Art.

–Keith
From about 860 miles SW of Hawaii


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