Yesterday, someone who knows of my past career as a financial advisor, asked me if he should invest?  Or, should he just pay-down his mortgage?  Given the significant volatility that the various financial markets have gone through over the past several months, I’m sure that he is not the only person with that question.  Additionally, it is important to keep in mind that the markets move in a series of Up and Down moves; however, the long-term trend is what an investor should try to focus on.

In considering the title question, an investor needs to consider their own personal situation.  Are you young or old, what is your time-frame until retirement, high or lower income, your risk-tolerance, do you have dependents with “special needs”, etc?  There is no cookie-cutter, one size fits all answer.  This is why you should mostly disregard advice provided by friends, market pundits or anyone else, who doesn’t truly know your personal situation.  Shotgun advice rarely hits the target!

If you are younger, potentially still working and putting money aside for the future, that is called the “Accumulation Phase” of investing for retirement, children’s education or any other long-term needs.  At this stage, you might be less protective and more interested in growth or the future.  Assuming a longer-term time horizon at this point, putting some money to work, from time-to-time, regardless of recent market direction probably makes sense.

Someone who is older, near or in retirement, should already be in a gradual transition into a more conservative investment mode.  But, some people in their 60s and 70s will prefer more or less stocks vs. bonds and cash in their portfolio.  At this stage, the “Withdrawal Phase”, your portfolio should be pretty much set, and perhaps with some filling-in around the edges to be made.  Even so, however, portfolios should always be monitored and changes made, whenever appropriate.

Workers who are making regular contributions to an employer-sponsored retirement plan, generally through payroll-deductions, should always continue to do so, as long as they can.  The reasons are:  such deductions provide long-term financial discipline; they can compound over time; and many employers match new contributions up to a certain limit.  Rather than panic during a market down-turn, you will always have the option to shift part or all of your balance into the (required) cash option–but still within the tax-deferred plan.  Unfortunately for many people, this might be the only money that will ever be set aside for future needs.

Back to my friend who asked the question in the title: should he invest or pay-down his mortgage? Basically, I told him “Yes”.  He and I have talked about investing over the years; so, although I have never Profiled him in detail, I do have an idea as to his situation: 55 years (or so) of age; high income and he expects to work as long as he can.  I believe that he has accumulated a good bit of cash and, realizing that it is not earning much, he wants to put it to work.

So, I told him to:  invest some cash now; pay his mortgage down somewhat; and keep the rest in cash. That way, he will have a reserve to re-visit this decision again in the future.  Also, at some later date, his personal situation might have changed, market conditions could be different or he just might have other options–or have accumulated more wealth to consider.  In this manner, he can “Do something!”, and yet not commit himself to undo risk.


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