7 reasons to invest in stocks after the age of 50

7 reasons to invest in stocks after the age of 50
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Dubai: Conventional investment wisdom says that as people get older they should invest less money in stocks and more in stable investments like bonds and cash. This is good advice based on the idea that in retirement you want to protect your assets in the event of a major market downturn.

But there is still a strong case for continuing to invest in stocks even as you age. Not many people recommend a portfolio entirely in stocks, but reducing stock ownership to zero doesn’t make sense either.

Consider that many mutual funds aimed at older investors still include large doses of stocks. On average, studies show that leading global mutual funds are 70 percent stock for 65-year-old retirees, and still 25 percent stock when that same retiree is over 90 years old.

Why does owning stocks make sense even for older investors? Let’s take a look at these 6 potential factors that we often forget to consider:

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We often forget to take n ° 1 into account: Life expectancy is increasing nowadays

If you’re thinking about retiring as you approach age 60, it’s important to recognize that you may still have several decades to live. Nowadays, people regularly live to be 80 years old.

Do you have enough savings to last 40 years or more? While it is important to protect the assets you own, you may find that higher returns from stocks will be needed to build up the money you need.

We often forget to take n ° 2 into account: 4 out of 10 people start saving late

If you started investing early and made regular contributions to your retirement accounts over several decades, you may be able to take a conservative investment approach in retirement.

But if you started investing late, your portfolio may not have had time to grow enough to fund a comfortable retirement.

Continuing to invest in stocks will allow you to expand your savings and reach your turnover target. It always makes sense to balance your stocks with more conservative investments, but taking a little more risk in exchange for potentially higher returns can be worth it.

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We often forget to consider # 3: Other investments don’t pay as much as they used to

Stepping away from stocks was good advice for seniors back in the days when you could get better returns on bonds and bank interest. Yields on government treasury bonds currently average around 1% to 2%.

This is less than half of what it was ten years ago and less than a third of the 1990 rate. Interest on cash in banks or certificates of deposit will generate a paltry 1 percent or less.

The bottom line is that these returns will barely exceed the rate of inflation and not bring you much useful income.

We often forget to take n ° 4 into account: some stocks are safer than others

Not all stocks go up and down in the same way. While stocks are generally more volatile than bonds and cash, many have a strong track record of stable returns and relative immunity to stock market crashes.

Take a look at mutual funds made up of large-cap companies with diverse sources of income. Think about dividend paying stocks that don’t move much in price, but can generate income.

To find these investments, look for those that lost less than average during the Great Recession and have a history of low volatility.

Investment

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We often forget to consider # 5: Dividend stocks can earn you income

Dividend stocks are not only more stable than many other equity investments, but they can also generate cash flow at a time when you are not bringing in other income.

A good dividend-paying stock can produce a return of over 4%, which is higher than what you will get from many other non-stock investments today. This will help ensure that the growth of your portfolio at least exceeds inflation.

If you’re not sure which dividend-paying stocks to buy, take a look at a well-rated dividend-paying mutual fund. On average, the world’s major mutual funds, for example, have a three-year total return of over 10%, beating the major benchmarks that track them.

Its aggregate returns also fell less than major global benchmarks during the Great Recession.

We often forget to take number 6 into account: busts are often followed by bigger booms

A person who retired 10 years ago would have stopped working as soon as the market collapsed, and there’s a good chance they’ve lost a significant chunk of their savings. It’s bad.

But it’s important to note that over the next decade, major stock market indices rose each year at an average of over 8.5 percent per year.

In other words, someone who lost a lot in the 2007-2008 crash will have gotten all their money back and more if they remained invested in stocks.

That’s not to say that older investors should be unreasonably aggressive, but they should be aware that a single bad year or two probably won’t wipe you out financially completely.

If your retirement is long, you may see market drops, but you will also see long stretches of good returns.

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Key to take away?

When people are retired, studies show that even though they are supposed to be done helping their children financially, it seems that older people continue to lend a helping hand to their children even as they grow older. adulthood.

A recent global survey indicated that millennial parents aged 19 to 37 receive on average more than $ 10,000 (Dh36,700) per year in cash or unpaid childcare from their parents .

With these additional costs on the horizon, those nearing retirement age may still want to invest in stocks to build their nest egg.

Investors of all ages experience spikes in blood pressure when the market turns, as it has done a few times lately. But seasoned market investors are reminded that now is not the time to reduce your exposure to equities.

You have years – decades, even if you’re healthy and have a family history of longevity – to weather the ups and downs of the stock market, add market experts. Consider global fund manager Vanguard has 78% of its 2035 retirement fund assets invested in stocks, the remaining 22% in bonds – that says a lot in itself, doesn’t it?

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About Kristina McManus

Kristina McManus

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