PLANNING FOR WEALTH & SECURITY
By attorneys Jennifer & Jeff Hawkins
 
Advice from The Gambler

Country music recording artist Kenny Rogers recorded a song thirty or so years ago called The Gambler. In that song, an old man gave life lessons to a younger man while they shared a train ride. The old man, a dying gambler, told the young man that he needed to “Know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.” These life lessons apply very well to most of us today in this turbulent economic environment.

Young investors are prone to be impatient and attempt to make as much money as they can, as fast as they can, with the least amount of effort. The allure of a quick dollar tempts many young investors to throw their money into risky ventures with sometimes unprofitable results. To some extent, this process is a healthy way for young investors to learn patience, so long as they learn their lessons without hurting themselves or others permanently. Generally speaking, younger investors can afford to invest money for the long term without worrying as much about whether their investment will pay out for them next month, next year, or even the next 10 or 15 years. Deferred taxation plans like an IRA or a 401k can serve these young investors well if they invest in high-quality investments that offer growth potential without unnecessary risk.

Older investors can still take advice from Kenny Rogers’ old gambler. Many of us have lost money in marketable securities investments and the local Alanar debacle. A classic gambling strategy in poker is to realize that the money that a poker player has thrown into the “pot” belongs to the pot and no longer belongs to the player. Many poker players feel they need to win back their money if they lose a pot and, thus, throw more money in the pot in hopes of winning their money back. Statistical analysis tells us each pot is an independent set of chances and a player is no more likely to win a second or third pot than they are to win the first. Therefore, an older investor needs to stick to sound investment policies for investors of their generation and to give attention to the demands on a retiree’s cash needs during retirement. The very nature of a retiree is that he or she is unlikely and probably unwilling to enter the workforce to earn more money. The reality is that it is very difficult for a retiree to reenter the workforce and earn the significant wages or salaries that his or her youthful employment once promised. Therefore, it is important not to risk retirement money in risky ventures. The deeper into retirement a person finds himself or herself, the more important it is to invest not only in secure investments, such as certificates of deposit, government securities, and top-quality annuities, but to also invest in increasingly short-term investment products that will allow the investor to access the investment for healthcare crises and other important personal needs.

Desperate times invite desperate measures. Like the old gambler advised, knowing when to walk, or even run from failed investments can be important. As this column advised last month, if the value of an asset, such as stock, has declined significantly in the recent economic recession, it is a bad idea to access that money by selling off low-value investments before it is necessary, because the “hold ‘em” strategy may be more useful until some depreciated investments, such as stocks and mutual funds, recover some of the value they’ve lost. Time-tested investment strategies that include a healthy balance of optimism and caution are contained in the old gambler’s advice. No matter where you find yourself with respect to the market, a cool head is always important, regardless of your age.

THIS ARTICLE IS NOT LEGAL ADVICE. ALWAYS CONSULT AN ATTORNEY DIRECTLY BEFORE RELYING UPON THIS ARTICLE OR CHANGING AN ESTATE PLAN. © 2009 by HAWKINS LAW PC, Estate, Trust & Business Attorneys. All rights reserved.