Consumer Insights
Prune Investments for Best Growth
Webster’s definition of prune is:
“To cut back for better shape or
more fruitful growth”.  The value
of this practice is unquestioned
for plants, but investments are
another matter.  The fact is:
keeping bad or risky investments
will stunt the growth of your
money. The wise follow the lead
of professional money managers:
sell the slackers and redeploy
the money into better options.  
Don’t forget: bad investments
drop faster and recover slower.  
The sooner you snip the
sappers, the faster will be the
fruitful growth.  By the way,
sometimes the best pruning
season is immediately after
blooming: past performance is
not an indicator of future results.

Investment pruning is hard to do
because (a) the slackers might
recover (in your dreams!) or (b)
taking losses can be stressful
(does this mean they’re not
real?).  Generally, bad
investments are rotten for a
reason, and keeping them in
hopes of improvement is wishful
thinking.  Worse still, the bottom
for a bad investment may lie
ahead, not behind.  If you worry
about an investment costing you
money you can’t afford to lose,
pruning is needed because that
loss can come today.  If you’ve
suffered a downward spiral admit
the mistake, sell the dog and put
your money in something with
better potential or less risk.  Hard
advice to follow, but you’ll feel a
lot better when you heed it.

Why are investors surprised
when investments lose value?  
Has a cure for the business cycle
been found?  Business cycles
mean investment values also
cycle.  To avoid losses, stay
away from investments that track
market movements because
markets fluctuate and no one
knows in advance which way
they’re headed -- not even the
investment expert that tells you
more than he knows.  
Remember, there are two types
of market forecasters: those that
don’t know, and those that don’t
know they don’t know.  

Let’s look at a real case.  A friend
of mine purchased a variable
annuity (could have been a
mutual fund, stock, or bond) a
few years back.  His latest
statement showed a value of
$150,000, down from the
$250,000 original investment.
How is this possible?  The value
of a variable annuity is tied to a
bucket of investments whose
value waxes
and wanes with economic activity
– in his case, they only waned.  
What should he do?  If he keeps
the annuity, will it lose even
more?  If it recovers, will it rise as
fast as an alternative investment
might?  Can he afford the market
risk he now knows is real?  
These are questions he needs to
ponder before engaging the
pruning shears.   

So what options are open to my
friend with the $100,000 loss?  
One, keep the investment and
hope for recovery and no further
loss: not an option if he can’t
tolerate the risk.  Two, buy more
of the same investment and
“average down” the price.  If the
investment recovers this was the
right strategy: if not, the problem
is worsened.  The question is:
does he want to take additional
risk? Third, sell, take the loss,
and redeploy the money into an
investment with lower risk.  If the
objective is to lower stress,
eliminate risk and sleep better,
this third option has appeal.  If a
sale is the chosen option,
avoiding the same mistake again
is the new objective.

Since the money is now in an
annuity, it would be wise to
investigate exchanging for
another annuity that offers
upside potential without
downside risk.  Exchanging one
annuity for another can be done
tax-free but advice from a
financial professional is
recommended.  One candidate
that should be seriously
considered for an exchange is
the index-linked fixed annuity
which offers upside potential
without downside risk. These
annuities are for safety-minded
savers building a nest egg for
retirement or guarding against
losses on the nest egg already
accumulated for retirement.   The
absolute worst you can do is
slow growth, because you’ll
always do better than break even
and losses are not possible.

This is a great time of the year to
review investments and prune
those that are zapping
performance or exceeding your
risk tolerance.  Choosing the
right investment can be
intimidating because the subject
matter is technical, the tax
consequences are real and the
options are many. You may be
qualified to use investment
pruning shears, but consulting a
professional for a second opinion
is needed.  Regardless of how
you approach it, tis’ the season
for pruning.
For Immediate Release
Reggie Jackson
RJ Insurance Services
RJ Insurance Services

10202 Angell Street | Downey, CA 90242
Phone 877-360-1144
Fax 678-693-7132
RJ Insurance & Travel Services
Consumer Insights