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Originally published July 26, 2014 at 8:02 PM | Page modified July 27, 2014 at 8:20 AM

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Saving is crucial, but so is return | Scott Burns

Columnist answers readers’ questions about investing and market timing.

Syndicated columnist



Q: My 37-year-old grandson is in business for himself. He is a great saver but has never used any method for saving except banking his money.

I told him that was like sticking his money under a mattress, and that he desperately needs to get into some kind of retirement saving program.

What would you suggest he use as a start for some sort of retirement savings program? He is not married and has no children.

A: There are lots of people in business for themselves who are great at making money but intimidated by the task of investing it. One reason is that both our financial-services industry and media make investing look incredibly difficult and extremely time-sensitive. Long-term investing is neither.

If doing things remotely is difficult for him, let me suggest that you visit a Schwab office and open an account. This will get you access to a very broad platform for investing and a person to provide guidance about opening accounts. He could also open an account at Fidelity, but they have fewer offices than Schwab.

Wherever he goes, the important thing is to make a consistent commitment. Since he is single and has no children, he can afford significant risk, but his temperament may not allow it, since he probably likes a greater feeling of control.

So it would be reasonable for him to start with a balanced fund. If he finds the ups and downs tolerable, he could then expand to a broad all-stock fund. The exact amount of risk isn’t important.

What is important is that he takes some risk so that he increases the long-term odds that his return will be greater than inflation.

Q: I’ve been a client of an investment advisory firm for nearly 14 years. During that time, the firm has done fairly well for me.

I’ve thought of using one of your investment strategies, but I know that if the market declined severely, I would bail out and would get back in at the least opportune time. I just don’t have faith that I will know the optimum time to return.

To avoid this, I have thought of putting my total portfolio with Berkshire Hathaway by investing in its stock. Does this seem like a prudent thing to do, or am I overlooking something?

A: You are overlooking a simple tool for “timing” the market: having a fixed asset allocation. If you have a 50/50 or 60/40 division between stocks and bonds, you will automatically be required to sell stocks as the market rises and to buy them after a major market decline.

You will do this simply to keep your asset allocation constant. So you don’t need to guess whether the market is near a top or near a bottom — your constant allocation will tell you when to move into stocks and when to move into bonds.

Questions: scott@scottburns.comCopyright 2014, Universal Press Syndicate

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