Last year, for the holidays, Anne finally got a computer.
Shortly thereafter, she was reading an online column about the historical returns of stocks and bonds, and she printed it to show her husband, Don.
He took the information to heart. Recognizing that a portfolio made up entirely of bonds and bank deposits is not likely to earn as much over time as a portfolio of stocks, he wants to move all of the couple's liquid assets to stocks.
Having reached her 70s without ever having purchased a stock mutual fund, Anne is skeptical. So she sent me an e-mail - one of her first e-mails ever - wondering how a couple who have never owned mutual funds might get into them without "going overboard, or finding some way to lose everything and have a mutual fund go to zero."
Having waited so long to invest, Anne and Don presumably were trying to keep their money safe (we have to presume it because Anne apparently doesn't check her e-mail very often).
By keeping it out of the stock market, they eliminated the chance that stocks decline, cutting into their principal.
But by going entirely into Treasury bonds and certificates of deposit, they gave a big sloppy embrace to what most experts call "purchasing-power risk": that their buying power is eroded by inflation.
Whatever mutual fund Don and Ann pick won't go to zero because, loosely speaking, every stock a fund holds would have to become worthless in order for a fund to wipe out all shareholders. That's not happening in a well-diversified fund.
But significant declines are in the realm of possibilities, and an ultra-conservative investor who bails out at the first sign of trouble has, in fact, bought that trouble, rather than merely renting it on the way to getting those historic average returns.
"I've worked with a lot of clients who want to go into stocks at a later age because they're afraid of running out of money," said Diahann Lassus, a financial adviser in Providence, N.J.
"Spreading their risk around makes sense, and they may know that they'll do better in the long term, but it's still an eye-opener when you are in the market for the first time and the market goes down, no matter what age you are when that happens."
She and other experts suggest that the best way to confront the problem is to learn more and then ease into the market.
In Don and Ann's case that most likely involves an index fund replicating the market and aiming for the historical returns that enticed Don and Ann in the first place.
Experts suggest that seniors taking their first steps into the market should put on 15 percent, but no more than 50 percent. Adding money to an index fund account each month was suggested time and again.
Said Ms. Lassus: "It's never too late for someone to make their first move in the market, but they should watch out for 'first cruise syndrome,' where a person who gets seasick on the first cruise never wants to go again. They need to understand that they a few rough waves do not mean they have to abandon ship, at which point they can stay on board and, in the end, enjoy the trip."
Charles Jaffe is a senior columnist for Marketwatch
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