04 Aug My wife is an investing chicken. What to do?

Q. My wife is terrified of investing in the stock market and would rather keep money in a mattress. We’re in our early 40s and I know we have time. How can I convince her to take a little bit of risk? It’s not like I want to invest in hedge funds or penny stocks.
— Not afraid, really

A. As we all know, these are confusing and difficult times for many investors, so your wife has legitimate fears.

However, in times of great confusion, there is also opportunity.

Saving your money in a mattress only results in a loss of purchasing power measured by the inflation rate, said Paul Criscione, a certified financial planner with Freedom Capital Management in Colts Neck.

On the other hand, he said, a well-diversified market portfolio, including cash as a short-term reserve, can offer growth while minimizing risk.

“We agree that diversification cannot guarantee against a loss, but it is the most important component to helping you reach your long-range financial goals,” he said. “It is never a bad idea to keep a portion of your assets in cash or a money market account.”

Cash can be used for emergencies and short-term money-market securities can be liquidated instantly.

Criscione offered these tips to help you create a well-diversified portfolio.

“Seek out many different investment vehicles – including cash, stocks, bonds, mutual funds, exchange-traded funds (ETFs) and others,” he said. “Choose assets whose returns haven’t historically moved in the same direction and to the same degree. If part of your portfolio declines, the rest may still be growing.”

Next, stay diversified within each type of investment. Include stocks that vary by sector, industry, region and market capitalization, he said. Mix styles such as growth, income and value. Ditto for bonds: vary maturities, credit qualities and durations.

Then include investments that vary in risk.

“Do not only choose blue chip stocks,” Criscione said. “In fact, picking different investments with different rates of return will ensure that large gains offset losses in other sectors.”

Then remember that portfolio diversification is not a one-time task. Schedule regular “check-ups” or “rebalancing” to make sure your portfolio has a risk level that’s consistent with your financial strategy and goals as they change, he said.

“Your best option is to sit with a Certified Financial Planner since they are trained to explain the risk-reward concept and help put things into perspective,” he said. “They also can match your investments with your goals to help ensure the appropriate risk is assumed.”

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