What if one of your children has no offspring? Perhaps you could specify that they give the money to a charity of their choice.<\/li>\n<\/ul>\nAs your son notes, this would have to be set up with legal expertise.<\/p>\n
Basically, he is making the most of the power of a compounding investment over a really long time. I say: \u201cGo for it!\u201d<\/p>\n
Small difference becomes big<\/p>\n
Q: Not a question, but a spectacular example of how a return of 8% versus 6% makes a massive difference after 42 years, is given in an online table I found.<\/b><\/p>\n
The 6% after 42 years provides $597,000. But the 8% provides $986,000, being nearly two-thirds more.<\/b><\/p>\n
A: You\u2019re right. Over long periods, a somewhat higher return makes a huge difference. That\u2019s why it would be best if the family in the previous Q&A, or anyone who wants to copy the idea, uses a high-risk fund \u2013 probably one that holds just shares.<\/p>\n
Stay with insurance<\/p>\n
Q: One of the benefits I received at my previous job was fully subsidised Southern Cross health insurance (Wellbeing One plan). Unfortunately, my new role does not include this coverage.<\/b><\/p>\n
I\u2019ve since been in contact with Southern Cross, and continuing the policy independently would cost around $230 per month.<\/b><\/p>\n
Given that I\u2019ve made very few claims in the past, I\u2019m considering the alternative of setting that money aside in a dedicated savings account to cover any potential future health expenses.<\/b><\/p>\n
I\u2019m in my late fifties, in good health and maintain a balanced lifestyle with daily exercise and a healthy diet. That said, I\u2019m mindful that health needs can change unexpectedly.<\/b><\/p>\n
My current policy is on hold until the end of August, so I need to make a decision soon.<\/b><\/p>\n
I would really appreciate your thoughts or any guidance you may have on what might be the best course of action.<\/b><\/p>\n
A: There\u2019s no clear answer to your question \u2013 or the many variations on it that seem to come into my conversations often, now that my friends and I are no longer spring chickens!<\/p>\n
Let\u2019s just say that if I were you, I would keep the health insurance going. You may look back later and say you would have been better off if you had followed your self-insurance plan. But what people often ignore is peace of mind in the meantime.<\/p>\n
It\u2019s worth a lot to know that if you do suddenly develop a serious health issue, you won\u2019t have to either wait for perhaps months to get help or find big sums of money for treatment. The last thing you need at that time is money worries as well.<\/p>\n
And being in good health in your fifties \u2013 or sixties or seventies \u2013 certainly doesn\u2019t come with a guarantee that it will continue. Clearly, leading a healthy lifestyle must help you to fight any health nasties, but it doesn\u2019t prevent them.<\/p>\n
On the other hand, you will be shocked at how quickly health insurance premiums rise as you get older. You can keep costs down to some extent by limiting cover to specialist care, rather than including GP visits, and by increasing your excess \u2013 the amount you have to pay before insurance kicks in.<\/p>\n
How much? Dunno<\/p>\n
Q: Another health insurance question. My husband and I are both 65 and face the common question of continuing our health insurance or to self-insure.<\/b><\/p>\n
It is hard to make this decision without a ballpark figure for self-insurance. I totally appreciate everyone\u2019s health is so variable and I understand the reluctance by brokers to provide a figure, but some guidance would be helpful and appreciated. Can you help?<\/b><\/p>\n
A: Sorry, but no. Or, if you insist, several hundred thousand dollars.<\/p>\n
Some medical procedures, including scans and surgery, cost thousands. What\u2019s more, you can\u2019t predict whether you will need several procedures at much the same time, as different parts of your body decide to misbehave.<\/p>\n
When to switch<\/p>\n
Q: You often refer to switching funds as locking in your losses. I never fully understood that.<\/b><\/p>\n
It makes sense to me if one switches funds because they are scared during a market drop and switch to a lower-risk fund long term.<\/b><\/p>\n
But in your view: does that apply to all fund switches? What are the risks when switching a fund? If I switch to a higher-risk fund while the market is down, do I still lock in any losses?<\/b><\/p>\n
I know timing the market is futile, but I don\u2019t understand what the downsides to switching at any given point are.<\/b><\/p>\n
A: I\u2019ve been waiting for the markets to wobble again before running this Q&A. Funnily enough, it hasn\u2019t really happened for a while. Then again, it could happen between my deadline time and the time you read this. So let\u2019s get on with it!<\/p>\n
First, we\u2019ll look at switching to a lower-risk fund during a downturn. Let\u2019s say that your account balance falls from $20,000 to $15,000.<\/p>\n
If you worry it will fall further, and therefore you reduce your risk, you\u2019ve locked in the $5000 loss. You won\u2019t get that money back again when the markets rise, because your new fund doesn\u2019t hold many shares, if any. And recovery always happens \u2013 although sometimes it takes a while, and occasionally several years.<\/p>\n
If, however, you had stayed the course, your balance would have returned to $20,000 or higher. You would have lost nothing.<\/p>\n
In those circumstances I would say, \u201cSorry, but if you can\u2019t cope with volatility you shouldn\u2019t have been in a high-risk fund in the first place. But okay, if you really can\u2019t sleep, just take the loss and move to lower risk. And, importantly, stay there\u201d. <\/p>\n
On other fund switches, it depends. If you move to higher risk during a downturn, that\u2019s a pretty good move. You\u2019ve bought at a relatively low price and will benefit when prices later recover.<\/p>\n
That\u2019s called contrarian investing \u2013 moving in the opposite direction to most people. The trouble is it involves market timing which, as you say, is a fool\u2019s game. When the market falls, for example, we never know if it might fall a long way further, followed by a slow recovery.<\/p>\n
So the rule is: reducing risk in a downturn is bad; increasing risk in a downturn may be good \u2013 but only if you\u2019re lucky. Usually it works far better to just get your money into the correct risk level for you, and leave it there.<\/p>\n
There are, however, two circumstances in which moving risk makes sense:<\/p>\n
\n- You\u2019re getting nearer to the time you expect to spend the money. In those circumstances, it can work well to move your money in, say, three lots, a month or two apart. That way you avoid happening to make the move at a bad time.<\/li>\n
- You realise you can\u2019t tolerate downturns as much as you thought you could. But, as stated above, you must then stay in the lower-risk fund for the long term.<\/li>\n<\/ul>\n
Not so possible<\/p>\n
Q: In regard to your comments on the use of aggressive funds by the elderly or those entering retirement, it is of course possible to do well by transferring money from an aggressive fund to a cash fund or similar when the aggressive fund is showing a peak balance.<\/b><\/p>\n
Over six months to a year, the aggressive fund will rise and fall similar to the Dow or Nasdaq index. Of course it\u2019s all about timing, but for those who follow the world indices figures, such as the VOO or similar, it is not too difficult to do.<\/b><\/p>\n
A: It\u2019s not just difficult, it\u2019s impossible if you want to get it right more than occasionally by luck.<\/p>\n
As I\u2019ve said often, it can work well for retired people to hold money they expect to spend in 10 or more years in an aggressive fund \u2013 usually a fund that holds shares only. But it\u2019s not a good place for shorter-term money.<\/p>\n
Your balance in such a fund can quite suddenly plunge \u2013 occasionally as much as halving. And, as noted above, recovery can sometimes take several years. Meanwhile, the grocery purchases can\u2019t wait.<\/p>\n
You\u2019re suggesting we simply watch how the markets are moving and switch to a lower-risk fund at market peaks \u2013 in other words, right before a market downturn. The big question \u2013 one that every active fund manager in the world would love to be able to answer \u2013 is when a market has peaked.<\/p>\n
Getting that right repeatedly can\u2019t be done. Every now and then a fund manager does well, reducing risk right before a crash. Convinced he \u2013 or rarely she \u2013 has learnt the secret, investors rush into their funds. And once in a golden moon, the fund manager gets it right a second time or third time, and even more investors jump on the wagon. And then, uh oh!<\/p>\n
If you want to try to do this with a small amount \u2013 let\u2019s call it play money \u2013 go for it. And good luck! But I would never suggest it for others.<\/p>\n
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary\u2019s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to <\/b>mary@maryholm.com<\/b><\/a>. Letters should not exceed 200 words. We won\u2019t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"\u201cThe theory is that each time I have a child born, I would invest $22,000. The key is…\n","protected":false},"author":2,"featured_media":9270,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[177],"tags":[79,8534,18,1652,9203,8776,19,9201,17,9202,234,235,1213,5644],"class_list":{"0":"post-9269","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-create","10":"tag-eire","11":"tag-family","12":"tag-holm","13":"tag-how","14":"tag-ie","15":"tag-intergenerational","16":"tag-ireland","17":"tag-mary","18":"tag-personal-finance","19":"tag-personalfinance","20":"tag-to","21":"tag-wealth"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/9269","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=9269"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/9269\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/9270"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=9269"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=9269"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=9269"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}