WHEN GOOD INVESTING GOES BAD
I talked with my client, trying to reassure him and convince him that liquidating the entire position was a very unwise idea. Even with all the reasons I presented to him, he was still very upset and firm that he wanted everything in a cash account. One thing that helped me convince him not to cash everything in was his wife. Although she was terrified, as he was, that they were going to lose their money, she knew that by selling everything they would turn their paper losses into actual losses. Together, she and I convinced my client not to liquidate everything. We agreed to move a portion of the money into a money market fund, and that he would draw his monthly income from there, rather than from another account. Even though this wasn’t what he truly felt he wanted, he was comfortable with this. And I was glad that he agreed not to sell everything.
I was able to talk him down from moving all his money to mov- ing about 10 percent. Later, as the market continued to decline, he and his wife came in for an appointment. We discussed being invested in the market versus keeping the money in a money market fund. When we initially moved the money, the money market account was earning about 4 percent; when we met for our appointment, it was closer to 3.25 percent. Since my client was taking out nearly 7 percent annually, we knew we had to change something. At that rate he was guaranteed to lose almost 4 percent per year.
We discussed moving his money back into the market. At first, he was a little resistant, but he knew that he had better reinvest, rather than try to time the market. I explained that by holding out until he felt the market was coming back, he was really doing himself a dis- service because he was putting himself in the position of missing out on potential growth. During that meeting, we reinvested his money in the stock market.
I know that it sounds like that really isn’t the case; that by taking his money out and then reinvesting it he was doing better, but we dis- cuss that in the buy-and-hold section of this chapter.
When it comes to timing the market, history has proven that it doesn’t work. (See Table 8.1.) Investors willing to stick out the short- term declines have been rewarded with large gains over the long run. In fact, missing just a few days, even during booming markets, can drastically impact the return on your portfolio. Unfortunately, many