Richard Cox Richard Cox is a university teacher in international trade and finance. Lecture halls of 80 to 120 students. Lessons in macroeconomics and price behavior in equity markets. Investing strategies in these articles are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies, and commodities).

Risky Business: Retirees and the Stock Market

1 min read

Stocks are perhaps the security with the most potential for rapid growth, but can lose their value just as quickly. Many investors are prepared to assume the risk and ride out the fluctuations of the market, but for retirees, there isn’t always time to patiently stand by and wait to recover value during a downturn, and any extended lull could place an entire retirement fund and a primary income stream at risk (click here for more help with this). With the inherently volatile nature of stocks, should a retiree still be playing such a dangerous game?

 

retireeThe old saying goes never to put all your eggs in one basket, and it certainly holds true here. Retirees can and should hold some stock, but with no income to defray the impact of a big loss and less than a lifetime to rebuild, it makes sense for retirees to rebalance their portfolios to be less risky, and diversification is necessary at this stage.

 

 

It’s not necessary to sell all your stocks overnight, but it is wise to gradually decrease the percentage of your investment resources devoted to the stock market and consider investing in more dependable securities like Treasury Income Protected Securities, whose value is guaranteed to rise at the rate of inflation over time, or income annuities, in which you make a one-time payment to an insurance provider in exchange for guaranteed yearly checks for the rest of your life.

 

These reliable income streams will help protect the integrity of your retirement and ensure that you do not end up serving fast food at 85 because the stock market is underperforming. Ideally, your portfolio should consist of at least 60 percent stable income-producing assets.

 

A good practice is to identify your minimum retirement needs and the sources that are guaranteed to supply you income such as a pension, interest or Social Security, should it still exist. Nothing in finance is absolute, so be sure to set aside a few years of living expenses in cash to guard against the unexpected.

 

Once you have determined how you’re going to keep your lights on, investing the rest in less stable securities such as stock becomes much less perilous. When you do buy stock, select companies with high growth potential rather than unremarkably consistent performers. With your essentials taken care of, it’s fine to go out on a limb for the extras.

 

When it comes to investing in the stock market after retirement, experts disagree on a concrete answer. However, the undeniable fact is that there are more stable options for a retiree to trust as a main source of income. Regardless of market performance, there is simply little reason to place the bulk of your investment resources in the stock market after retirement.

Richard Cox Richard Cox is a university teacher in international trade and finance. Lecture halls of 80 to 120 students. Lessons in macroeconomics and price behavior in equity markets. Investing strategies in these articles are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies, and commodities).

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