Stocks for All Ages

The Saratogian (Saratoga, NY) - - BUSINESS -

Con­ven­tional wis­dom will have you shift­ing as­sets out of stocks and into bonds as you age and ap­proach re­tire­ment. Don’t fol­low that blindly, though, as stocks can still serve older in­vestors well.

The ra­tio­nale for the rule is that the stock mar­ket can be volatile, and re­tirees won’t want to have to sell some stocks af­ter the mar­ket has swooned for in­come to pay their bills or oth­er­wise sup­port them­selves. While younger in­vestors can sim­ply wait out down­turns, re­tirees have less flex­i­bil­ity.

On the other hand, stocks tend to average sig­nif­i­cantly higher growth rates than bonds, so a sharp shift into bonds — or other “safer” in­vest­ments such as cer­tifi­cates of de­posit (CDs) — can re­ally slow your port­fo­lio’s growth. (Stocks out­per­formed bonds in 96% of all 20-year hold­ing pe­ri­ods be­tween 1871 and 2012, and in 99% of all 30-year hold­ing pe­ri­ods, says fi­nance pro­fes­sor Jeremy Siegel).

Mak­ing mat­ters worse, in pe­ri­ods of very low in­ter­est rates, many bonds won’t even keep up with inflation, so over time the pur­chas­ing power of your money can shrink. Inflation has av­er­aged 3% an­nu­ally over long pe­ri­ods.

Then there’s age. “About 1 out of ev­ery 3 65-year-olds to­day will live past age 90, and about 1 out of 7 will live past age 95,” says the So­cial Se­cu­rity Ad­min­is­tra­tion. If you re­tire at 62 and then live to 95, you’re look­ing at 33 years of re­tire­ment. A good por­tion of your as­sets could stay grow­ing in stocks for at least the first decade of your re­tire­ment.

An old rule of thumb had you sub­tract­ing your age from 100 to see what per­cent­age of your as­sets should be in stocks. So if you were 65, you’d have 35% in stocks. With peo­ple liv­ing longer, though, many ad­vis­ers now sug­gest sub­tract­ing from 110 or 120; that would have a 65-year-old in­vest­ing 45% or 55% of as­sets in stocks.

For more re­tire­ment guid­ance, try our “Rule Your Re­tire­ment” ser­vice at­vices. You might also con­sult a good fi­nan­cial ad­viser.

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