The Best Investment Advice For Seniors Is Consider Your Goals
The number one investment worry for seniors is outliving your money. Is this your number one fear also?
If outliving your money is your main concern then you need to truly reflect on what your real investment goals are. Most seniors in retirement thing they can’t risk their investments. They’re afraid to take any risk in the stock market and scared of losing.
But look at the facts! Inflation as measured but he CPI has averaged over 4.5% for the last four decades. While inflation is relatively low right now, it’s heating up! At long term inflation rates a gallon of milk which is $4.00 at the store today will be $10.00 in 20 years.
Or look at a postage stamp over a typical retirement lifetime. 30 years ago in 1980 a stamp was .15. Today it’s .44. The letter you’re sending get’s the same treatment it did 30 years ago, but it costs three times as much to send it due to inflation.
The biggest threat you have as a senior investor is loss of purchasing power due to inflation! It assures you will run out of money if you don’t achieve a return on your investments greater than the long term inflation rate.
Invest With The Beginning In Mind
The fact is none of us know when our time is up. Since we don’t know our life expectancy the only safe course of action is to invest as if we’re going to live A LONG TIME! We generally plan our clients into their early 90′s – and we get a lot of chuckle’s from clients when we explain this. But the worst possible mistake we can make as a retirement planner is to allow our clients to run out of money due to poor planning.
The only thing we do know for sure is the beginning. We know when we’re starting the investment plan even though we don’t know when it will end. Our advice to clients is to focus on the beginning not the end, and each day the sun rises is a new beginning!
Since we know the beginning but don’t know the end it’s safe to always invest for rolling 5 year periods. From here we can always structure an investment portfolio that has some exposure to offset inflationary pressures. The biggest mistake senior investors make is investing too conservatively thinking that their investment timeframe is running out quickly. The fact is they’ll wake up in 5 or 10 years and wish they’d invested more moderately when they fill up the gas tank or buy that gallon of milk at the store.
This is perhaps the hardest aspect of investing for seniors though. The volatility of growth investments like stocks and stock mutual funds can be scary. We understand that, and we constantly educate our clients on the long term growth of stock market investments and how those investments fit in with their retirement plan.
Don’t Make The Big Mistakes
While one of the biggest mistakes seniors make is investing too conservatively, the other is changing investment strategy due to market events or the talking heads on TV. No investors strategy should be changed as the result of news or what’s happening this week or this month. Investment plans – specifically retirement plans – should be long term in nature.
I’ve counseled clients in bad markets. It’s not easy. I’ve even had foolish clients vehemently disagree with me and pull out everything from their stock investments in bad markets, only to wake up 6 months or a year later and buy back in. Making the big mistake as a beginner investor is one thing. Making the big mistake in retirement cannot be recovered from – your earning years are behind you now!
Don’t Chase Investment Yield
Chasing investment yield – for example buying high dividend stocks, junk bonds, or other low quality investments can also derail an otherwise well structured retirement investment plan. Chasing yield is foolish. Don’t chase yield!
Rather the best investment advice to seniors and all investors is to invest with total return in mind. There’s a reason that stock or bond is yielding that amazingly attractive rate – and it’s NOT GOOD! Run – don’t walk – the other way! Invest with total return in mind. You’ll be far happier with an average total return than a great dividend and losing your principle to go with it!
Seniors, Please Don’t Fall Victim To Annuity Salespeople!
While there are a smattering of quality insurance advisors, most annuity salespeople prey on the fears of senior investors. Annuity investments sound so great on the surface – they’re designed to sound great! They’re presented as investments with no risk and upside potential with the stock market! I have some property in Florida to sell you too!
Annuities are generally absolutely miserable retirement investments for most senior investors. They’re laden with amazingly high fees and commissions and don’t deliver what most investors think they will. I won’t make many friends in the insurance sales side of the industry – but that’s OK because I’d rather warn the public!
Anything that sounds too good to be true typically is! Don’t fall victim to these insurance and annuity products that almost NO ONE UNDERSTANDS! Stick with plain vanilla index funds and an expertly designed asset allocation model with a proper retirement financial plan as the foundation – you’ll accomplish your goals and sleep better knowing what you own!