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A Widow’s Dangerous Financial Decision

Here’s a story that I’ve watched unfold many times in my conference room. Do you recognize yourself, or perhaps your parents?

She made a lot of money

I sat with a new client, a woman whose husband of over 50 years had handled all of the money decisions, and she proudly told me about all of the successful stocks that he had chosen. Though she could name most of the companies in the portfolio, she didn’t know much more about them. “We made so much money with these stocks!” she said. I asked if she thought her 100%-equity portfolio was aggressive, and she said, “Certainly not. My husband only bought conservative stocks.”

She could lose her fortune overnight

The first thing I had to point out to her was that there is no such thing as a “conservative” stock. As someone who helps people handle their U.S. brokerage and IRA accounts, I explained that every stock can, and sometimes does, drop. Just look at how some of the largest companies fell over 50% in the 2007 crash.

What would happen if her stocks dropped?

Next, I focused on her goals. She lives in a protected living community that she loved and her main goal was to continue to be able to afford the monthly fees. If her portfolio dropped in value, she would have to move out. On the other hand, if she sold her stocks now and moved the proceeds to safer investments like quality bonds or bank deposits, she could withstand a shakeup in the stock market much better.

What’s more important than profits?

Don’t concentrate only on potential returns when designing your portfolio. Instead, figure out what you really want – in her case, her #1 goal was to remain in her current living facility – and then set up your investments to maximize your chances of being able to live your dreams.

Please let me know if you have a similar story that you can share: doug@profile-financial.com

 

Douglas Goldstein, CFP®, investment advisor, is the co-author with Grandmaster Susan Polgar of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing.

Profile Perspectives is a personal finance blog based on articles Doug Goldstein, CFP®, director of Profile Investment Services, Ltd., published in The Jerusalem Post. The information posted is purely informational and does not constitute investment or tax advice. Advertisements on the site are neither endorsements nor recommendations. Consult your professional advisors before making any investments based on articles or advertisements. Securities offered through Portfolio Resources Group, Inc., member of FINRA, SIPC, MSRB, FSI. Accounts carried by Pershing LLC., Member NYSE/SIPC, a subsidiary of The Bank of New York Mellon Corporation.

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