The Importance of Equity in the Financial Portfolio of Elderly Investors
Earlier this month we were doing a periodical review of a client’s portfolio. The client was a 77-year-old widow. She had a decent financial portfolio that had 95% exposure to fixed income investments. Though we were certain that the cashflow could sustain her, we felt she should marginally increase her exposure to equity. We took up this point for discussion. She was aware of the peculiarities of investing in equity – both the increased return over the long term and the volatility in the short. She was not sure whether at her age she should take this step.
This made me think about this aspect more deeply. As people get older and get ready to retire, it's really important to make sure their money is arranged right for a secure and stable future. Some might say it's smart to go for safer investments as you get older, but it's also important to remember that having some investment in equity is really valuable for senior citizens.
There are several reasons why even older people should have some exposure to equity in their portfolio. It's about making sure they get the advantages and think about different options for a well-balanced and diverse money plan.
Senior people should consider having stocks because they're living longer, thanks to better healthcare and lifestyles. Living longer means there's a risk of running out of money during retirement. Having stocks in their investments can bring in more money and help them support themselves for a longer retirement.
Inflation makes money buy less over time. Retirees and other senior people need to combat inflation to live comfortably. Unlike some investments that struggle with inflation, stocks have a history of growing more than inflation. So, having some stocks can protect and even increase the real value of an older person's money.
Having stocks, especially those that pay dividends, can provide older people with a steady income. Usually, bonds are considered for income, but stocks also pay dividends, giving extra money. This income is helpful for covering daily expenses and providing more financial freedom in retirement.
It's a smart rule to spread out your investments, and it's crucial for older investors too. Seniors can lower the risk by having various types of investments, like stocks, in their collection. If one investment doesn't do well, the others can balance it out. Diversification keeps the portfolio steady and strong, which is important for those who want to play it safe with their money in later years.
Stocks can grow in value over time, giving older investors a chance to see their money increase. While there's some risk, the potential for more money can make their financial foundation stronger. This growth can be used to reach some specific money goals, like leaving something for family or supporting charities.
Smart money management today understands the importance of adapting to changes in the market and one's comfort with risk. Older investors can benefit from using flexible strategies that include stocks when the market is good. They can also adjust their investments as they age or if their money goals change. This way, they can have a personal and flexible plan for their investments.
Therefore, having stocks in the financial portfolio of older investors is really important. It helps deal with challenges and chances in retirement. Things like living longer, tackling inflation, getting regular income, spreading out risk, making more money, and adjusting plans are all reasons why stocks matter for senior citizens. By managing the mix of risk and reward carefully, senior citizens can make their plans work well for a safe and happy retirement.
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