"Investment Common Sense" - A "Life and Money" article.

Written by:

Frank Sisco, CPA, PFS, 30 Mill Road, New Rochelle, NY 10804

Home office - 914.740.4422, Cell - 914.589.1013; Email – ideasmoney@aol.com

www.LifeAndMoney.com

(Word count = 555 word count plus 64 words for About the Author)

Because of large declines in the stock market, including on 9/15/08 when the Dow Jones Industrials Average closed down 504 points to 10,917, some readers have asked me to rerun my "Investing Realistically" column that appeared in the September 2007 issue when the Dow was 13,041, which was 16% higher. Because the probability remains high that there will be other large bankruptcies, bank failures, and significant economic uncertainties, isn't it common sense that many people should consider making changes so that the bulk of their money is invested in such a way that the principal is guaranteed and safe and not subject to market loss? Why take a chance, at least for the next year or so? Here is what my prior column indicated that you may find helful:

Let's say you are a person in her forties or fifties, married with children in college, and with a large mortgage on your house. Your income and that of your husband are good, but you don't seem to be able to save anything beyond the money going into your 401k and 403b plans. Or let's imagine a similar situation for another couple, except that the children are out of college but not yet financially independent. Or that one spouse's financial situation is very tenuous. Or one spouse's business or job is in an industry undergoing a lot of change and it looks like income will fall in the near future, and possibly taking years to recover.

Should these people be invested in the stock market? I say no, unless they can "pass all three tests"; (1) that they truly understand that investments in the stock market can decline very significantly over long periods of time and (2) that they may need to sell these investments to raise money to cover expenses and (3) that they are sure that they will be able to emotionally handle large and/or long erosions in their investments. As a financial advisor for over 30 years, I have found that the large majority of people I've known cannot handle the risk and end up selling during lower periods, and buying back during higher periods, no matter how smart they are. Furthermore, there is a clear record in history that the equities markets have undergone long protracted bear market cycles. One example is from 1966 to 1981, when it took 15 years for the S&P 500 to recover its previous high. If that happened again, many baby boomers hoping to retire in the next few years may find themselves unable to do so. Worse yet, many retirees already drawing down their investments to cover expenses may find themselves running out of money, forcing them to sell their homes or dramatically curtail their lifestyle.

Although volatile non-guaranteed investments are suitable for some people in some situations, in many situations for many people they probably are not suitable. Probably not for the hypothetical couples I mentioned. Or for seniors on a fixed-income with limited resources. Or for people without adequate life insurance, disability insurance or long-term care insurance. Or people facing the possible catastrophic effects of a long-term illness. Or small business owners in erratic industries. Or employees with uncertain futures. You get my point? The key is to know yourself, don't get fooled, and to use common sense.

About the author:

Frank Sisco is a CPA, Personal Financial Specialist and video journalist (see www.VideoVoom.com) who writes on topics related to life and money. You can contact Frank by email at ideasmoney@aol.com or by phone at 914.589.1013 in order to express your opinion about this article or to obtain copies of prior articles. Frank, his wife and daughter reside in New Rochelle, NY.