Money Matters: Investment Needs Change with Age

The common wisdom in financial planning is to diversify your assets and leave your money alone. But what if you are at an age when you need access to those funds for retirement or health issues? Any financial strategy needs to account for not only how much you can gain, but how much you can lose. Following the dramatic stock market losses in 2000 and 2008, most investors have the risks of the market well in mind. How much risk should seniors have in their portfolios and what can they do to offset the highs and lows of a volatile market?

In order to evaluate risk you must consider your needs based on your investment objectives, risk tolerance and timeline. Based on these three factors, you can categorize your investments based on when you need the money. Is there an immediate need, future need or is this money you plan to leave to your heirs? The first need is for funds you expect to spend in the next few years (immediate need) and would invest conservatively. The second need would be for investments you will use later (future need) and on which you can assume more risk, and, finally the third need is for money you intend to leave your heirs that may be able to tolerate additional risk. The third provides time to absorb significant market changes. Of course all approaches must be individually tailored to meet your safety, growth and income requirements.

One of the biggest challenges for seniors is the risk of outliv- ing your assets. But seniors have a natural inclination to say, “I can’t invest for 15 or 20 years because I won’t live that long.”This dichotomy makes investing difficult and often concentrates assets in shorter-term, lower-yielding investments. These types of investments increase the likelihood you will need to spend down principal at an unsustainable rate. Don’t be afraid to consider a longer-term investment if it’s in line with your risk tolerance and investment objectives. Always remember that very few invest- ments can’t be liquidated early should an unexpected need arise.

Some consider diversifying their investments, which is the practice of taking a position in one asset to potentially mitigate the risk of another. Hedging may soften the downside risk but may also reduce returns. Broad diversification of equity investments may reduce volatility over longer time frames. Hence, consider investing in the market only assets that can remain invested for a longer time and combine that with annual rebalancing. Please keep in mind that diversification cannot protect against a loss or guarantee a profit.Investment strategy is of primary importance to us all. However, remember that the strategy must fit into your broader goals of lifestyle, security for you and your family, independence, tax savings, medical needs, inheritance, business continuation, inflation protection and the like. Stipulate these broader objectives first and then look to yourself and your advisor for the strategies that best serve you and your family. The strategies discussed in this article are just a few of the many different ways to approach investing. Please consult with your financial advisor or tax attorney prior to investing to determine which approach may be most suitable for your needs.

For seniors living on the assets accumulated over a lifetime, investment allocation is critical. Whether from a retail or wholesale broker, a fee-based planner or trusted financial advisor, now is a good time to seek a second opinion. The new tax laws make this consultation advisable as well since certain income-producing investments provide income at lower tax rates than others. Keep an open mind regarding investment recommendations, but be sure you understand what they do, how they do it, and what goal or objective they are designed to fill.


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