Investing

Dear Liz: With the tumult in the stock market, I’ve been thinking of a strategy which may be safe but not prudent. I have about $315,000 in a trust account which pays me about $9,000 a year in dividends. I’m 81. If I sell all the stocks in my trust account, I could draw the same $9,000 for over 10 years, not counting about 2% growth on the $315,000. What are your thoughts?

Answer: Many people have discovered they’re not as risk tolerant as they thought they were. The volatile stock market has unnerved even seasoned retirement investors. Most, however, should continue investing because they won’t need the money for decades, and even retirees typically need the kinds of returns that only stocks can deliver long term.

There’s no reason to take more risk than necessary, however. If all you need from your trust account is $9,000 a year, you’d be unlikely to run out even if your money is sitting in cash. But you may need more than $9,000 in the future — to adjust for inflation, for example, or to cover long-term care costs.

One option to consider is a single-premium immediate annuity. In exchange for a lump sum, you’d get a guaranteed stream of monthly checks for the rest of your life. At your age, you could get $9,000 a year by investing about $100,000 in such an annuity. Because your payments would be guaranteed by the annuity, you might be more comfortable leaving at least some of the rest of your account in stocks for potential growth.

Dear Liz: I’m a federal employee with a Thrift Savings Plan account. I’m 35 and have put about $125,000 into my TSP. However, I never changed it from the low-risk G fund so it’s not gaining as much interest as it should. Should I wait for the market to tank before moving it around or is it OK to move it now due to my age and amount of time I have before retirement? I’m worried I’ll move it and I’ll lose the value in a downturn, so maybe I should wait for a downturn to act.

Answer: You sent this question a few weeks ago, before the recent correction. Did you use the downturn as an excuse to hop into the market? Or did you stay on the sidelines, worried it might drop further?

Many people in your situation get cold feet. You’re better off in the long run just diving in and not trying to time the market.

Waiting for a downturn sounds good in theory, but in reality there’s no sure way to call the bottom of any stock market decline. And when the stock market recovers, it tends to do so in a hurry. If you delay too long, you risk missing much of the upside.

It won’t feel good if the market plunges a day, a week or a year after you invest your money, but remember that you’re investing for the long term. The day-to-day or even year-to-year gyrations of the stock market don’t matter. What matters is the trend over the next 30 years — and long term, stocks outperform every other asset class.