Naturally, your approach to investing evolves as you age. A smart investment strategy for a young professional in her 30s will be completely different than that of an older adult on the cusp of retirement.
Retirement calls for a complete change in attitude to investing, rather than merely a change in the composition of your portfolio. Remember that the best approach for you will be based on your unique circumstances, and that every rule has an exception.
We’ve put together five ways that your investment style should evolve as you age to help you plan for the future. While these tips are intended to be general guidance and food for thought, we advise that you consider speaking with an impartial financial advisor before making any important investment decisions.
1. Adjust Your Investment Strategy
Many investment “best-practices” aren’t actually valid for older adults. For instance, a younger person may have time to ride out a bear market, while an older person may not have that liberty. As you approach retirement, it’s important to look at your investment strategy with a fresh and open mind, and let go of assumptions that may no longer be valid for your situation.
2. Prepare for the Final Stretch
First and foremost, your investments must be structured so that they can sustain you for the rest of your life. This involves a fundamentally different attitude to investing than you may have had when you were younger. Between your investments and any retirement income you might have (e.g. pension, social security), this is it. You will need to make it work with what you have. And you may live longer than you expect. You may need expensive long-term care. These considerations need to be factored into the equation.
3. Prioritize Your Well-Being Over Your Financial Legacy
Because your investments are likely to become your sustenance in retirement, it is best to put your financial “legacy” out of your mind when making investment decisions. Yes, it would be nice if you are able to leave a lot for your heirs after you pass away, but the most important thing is that you are able to maintain a comfortable lifestyle throughout retirement, even if you live into your 90s or beyond. If you prioritize your “legacy” over your quality of life, you can become needlessly anxious and surrender to a mindset where you are serving your investments instead of your investments serving you.
4. Minimize Risk
Most financial planning experts agree that by the time you reach your 60s, you are past the point where your investments should involve significant risk. If you’re tempted to make risky investments at this age, ask yourself, “Why?"
Are you trying to make up for inadequate savings, hoping to hit the jackpot with a lucky stock pick? If so, recognize that you have a strong chance of just making your situation worse.
If you are retiring with fewer savings than you had hoped, don’t count on a gamble to save the day. It’s better to bite the bullet and make some sacrifices now than to risk digging yourself into an even deeper hole.
5. Hold Fewer Stocks and More Bonds
In the spirit of reducing risk adopting a more conservative strategy, financial planners generally suggest retirees hold a portfolio with a smaller share of stocks. For instance, in your 30s, financial advisors may recommend a portfolio composed of approximately 75 percent stocks and 25 percent bonds, but in your retirement, it may be wiser for this ratio to be reversed.
As noted before, older adults might not have the time to hold stocks through a bear market to wait for an eventual rebound. Yes, this rebound may be inevitable, but it doesn’t help you if it happens after you’re gone. It’s better to simply not expose yourself to the risk of a market crash if you are reliant on those funds for your own well-being. Bonds tend to have a lower rate of return than stocks, but they are not subject to the risk of a stock market crash.
In short, during retirement, your investments become a lifeline you should not risk. Of course, the precise details of your investment strategy will depend on your particular needs, so don’t hesitate to connect with a professional advisor before making any potentially life-altering financial decisions.