Travel and tourism reporter Leigh Guidry and her family continue their mission to see all 21 Louisiana state parks with a very cold visit to Fontainebleau State Park on Sunday. You can follow along on Instagram at @thedailyadvertiser or at theadvertiser.com. Leigh Guidry/USA Today Network
In 2008, the stock market took a significant correction. Senior citizens, retirees, and those who were about to retire moved much of their money, if not all, out of the market and into a safer investment vehicle, such as a fixed income or bank account.
Now that there is tremendous growth in the market, those same people are eager to reap the benefits of market growth as quickly as possible. If you are one of them and want to move all of your money, en masse, into a stock account there are some cautions that need to be considered.
The stock market is a roller coaster. It goes up and down, sometimes with huge swings such as what is happening in the market now and what happened in 2008. As the market goes up, everyone with a retirement account or investment account which invests in the stock market is extremely happy.
But the market does go down.
If Congress changes the tax law, if there is political uncertainty, or if the economy cools off there could be a general downturn in stock returns. The returns we are currently seeing will be reduced and, along with that, a reduction in the value of the investment account.
Nevertheless, we all want our money to grow. Over the last 30 years, the stock market had the greatest growth potential. To take advantage of this growth potential without exposing your money to a significant market correction, investors are encouraged to do dollar cost averaging.
This method of investing recommends that investors move incremental amounts of money from a fixed interest account into the stock market. This can be done monthly, annually or at any designated interval of the investor’s choosing. At any point in time, the investor can choose against moving any further money into the market. The overall effect is that some money stays in the fixed account and remains safe from market swings while the money moved grows as the market grows.
If the market has a correction, only some of the principal of the retirement account is at risk. As someone who is retired or about to retire, there is minimal opportunity to recoup your investment dollars if the market does indeed correct once you have reentered the market, so this method protects much of your investment money.
Another alternative is to move your money into a balanced or “growth and income” mutual fund. Part of the dollars are invested in the stock market but other dollars are invested for safety, preservation of principal, and income generation. This type of mutual fund offers a little of everything to the retired investor. If you choose this path, make sure that you use a quality mutual fund that has a reputation for smart money management. If you are looking for this type of investment and are unsure which fund companies have a solid reputation for fiscal responsibility, a good financial planner can help.
Moving your money from safety to risk can be scary for many people. However, when done right, the investor reaps the benefit of growth while preserving the principal he or she has acquired over a lifetime of work.
Mary Fox Luquette, MBA, CLU, ChFC is a finance instructor in the BI Moody III College of Business at the University of Louisiana at Lafayette.
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