Rally offers an exit for some investors

March 15, 2009|By Gail MarksJarvis | Gail MarksJarvis,Chicago Tribune

The Wall Street rally last week provided a precious opportunity in a bear market: an exit door for people in need of cash.

Typically, when the market has crashed like it has, the last thing investment advisers recommend is selling. They want people to hold on to solid stocks and stock funds and wait for a healthy market.

But some people can't wait. They might have locked too much money up in stocks and need cash for bills.

Sometimes people have more options than they realize and don't really have to sell.

Parents with college bills might be able to borrow through federal student loan programs, giving college funds time to heal and using them later for a younger child.

Some retirees may have a pension, Social Security and money in government bonds and CDs to cover living expenses for another decade. But others with too much money tied up in the stock market have fewer options.

That's when, advisers say, those investors could use stock market rallies to sell risky investments, safeguarding the money for retirement necessities.

Some retirees may not have any other option but to sell stocks even at a loss, experts say, particularly those who have an overly aggressive portfolio with close to 80 percent in stocks.

Charles Farrell, a Denver financial planner, thinks it's prudent for retirees to keep about 20 percent to 30 percent invested in stocks, but the key is to test the impact of possible downturns on living expenses. While retirees often are told they can tap 4 percent of their savings a year for living expenses, removing another 4 percent for basic needs in a period when their investments have declined 30 percent amounts to a 34 percent decline.

That's difficult to regain quickly. Rather than selling all stocks, Farrell said he encourages healthy seniors to take on a part-time job and tap less from their savings.

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