7 Reasons You're Never Too Old to Buy Stocks

By Tim Lemke on 12 March 2018 0 comments

One common rule of thumb for investors is to move away from stocks into more conservative investments as you get older. The thinking behind this is that stocks always carry the risk of losing value, and that's not something you want to see with your retirement fund.

But completely abandoning stocks may not be the right strategy, either. Holding some stocks in your portfolio can be a hedge against inflation, and can help ensure that your retirement money lasts as long as you do.

Here's a look at some reasons why, even for older investors, stocks are always a good buy.

1. You may live longer than you think

Many people assume that once you approach retirement age, all of your efforts should be focused on protecting your assets rather than growing them. But the reality is that many retirees will need their money to last 30 years or more, and the only way to make money last that long is to continue to accumulate it.

Having some money in stocks will, in most years, allow you to replenish money that you spend from your portfolio. Consider this: If you have a nest egg of $1 million and spend $50,000 annually, your savings will be gone in about 20 years. But if you are able to add 4 percent to your portfolio each year from stocks, your savings could last another decade or more. (See also: 5 Ways Longevity Is Changing Retirement Planning (And What to Do About It))

2. Many stocks can be safe investments

We tend think of stocks as risky and volatile investments, but that's not always the case. Many stocks are actually very common and useful investments for people looking to bring stability to their portfolio.

Dividend stocks are a common component of retiree accounts, because they generate income for the investor and generally don't rise and fall dramatically in price. There are also some industries, such as consumer goods, that have offered steady returns year in and year out. Some stocks, such as Wal-Mart, are good bets even during bad economic times. You don't have to lay off stocks entirely as you get close to retirement age. It's just a matter of finding stable, income-producing stocks that can serve you well as you get older.

3. Markets rebound fairly quickly

No one likes to see the stock market take a big dive, but the good news is that it always goes back up. There are only a handful of times in history when the stock market has had consecutive down years. Moreover, years with negative returns are often followed up with positive returns of greater magnitude. History shows that if you lose money in the markets one year, you'll likely make that money and more back within a few years. In other words, even if you are well into your senior years, you're unlikely to see your entire savings gone in a single swoop. (See also: 6 Confidence-Inspiring Facts About the Stock Market)

4. Stocks don't need to comprise your whole portfolio

Buying stocks when you are at or near retirement age is only a bad idea if you're not also invested in more stable things like bonds and cash. Stocks don't have to make up 100 percent of your retirement fund. They don't even have to make up 50 or 25 percent. But having stocks as a relatively small percentage of your portfolio can help make your money last longer without adding much risk.

For example, let's say you have $1 million in your retirement fund. And let's say 10 percent of that ($100,000) is in stocks, with the rest in bonds and cash. If the stock market were to take a dive of 30 percent in one year, you might lose $30,000 from the stock portion of the portfolio. That's $30,000 out of a total of $1 million saved, or just 3 percent of your total savings. You'd still have $970,000 left. Given that the market historically goes up more than it goes down, this is a reasonable risk to take. (See also: How the Risk Averse Can Get Into the Stock Market)

5. Returns from bonds and cash are lousy these days

For many years, it was common for Americans to get good returns on government and municipal bonds, as well as normal savings accounts and certificates of deposit. Thus, retirement accounts were constantly being replenished with new money.

Nowadays, interest rates are still at some of their lowest rates in history, so it's easy to see how your personal spending rate will outpace the returns from your retirement funds. In fact, there is some risk that your returns may not even outpace the rate of inflation. Only with stocks will you be able to see the types of gains once seen from bonds and cash in the past, and you'll never be at risk of seeing inflation eat away at your nest egg.

6. Transgenerational wealth is a powerful thing

Have you ever wondered how massively wealthy people got their money? It's often because they inherited it. In fact, many younger Americans say they are expecting a sizable inheritance. According to a recent survey from Natixis, 60 percent of millennials believe they will inherit some money from their parents.

If you want to ensure financial security for your children and even generations beyond, your own personal retirement time horizon is irrelevant. Only through stocks can you continue to accumulate returns that generate the kind of wealth that will transform the lives of your heirs.

7. Stocks are just more fun

Cash is safe. Bonds are safe. But they are boring as heck. And it's downright wrong to assume that older people can't have some excitement in their lives.

Placing money in the stock market and watching it grow is fun. Being a shareholder of a company is fun. And if you are retired, you actually now have time to pay attention to your investments. Of course, you never want to let a desire for fun force you into a silly investment decision. Stocks should comprise a relatively small section of retirement funds for older people. But I'm not about to tell our seniors they can't let loose a little bit. (See also: 7 Reasons to Invest in Stocks Past Age 50)

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