Retirement and changing strategies
As with any new period in life, changing strategies are required for investing after retirement. An investing strategy for investing after the beginning of retirement should reflect changing incomes and financial needs. What are the strategies for investing by seniors and why some investments have unexpected drawbacks for the golden years?
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Investing for senior investors
Investing choices for senior investors should, without a doubt, be different from the ones mostly used by other investors. Although more and more seniors are working well into their retirement, for most, their income is their pension and their investments.
Risking own investments, at a position in life when losses can bring catastrophic consequences, is not a decision many senior investors come to. That’s why it’s important to limit oneself, and to find new investing areas inside the limits.
Investing for retirement: main guidelines gives the main principles for investing for retirement. While many of them can be used for investing during retirement, going uphill is different from staying on the top.
The main goal for investing during retirement (for all retirees) is keeping wealth at the current level. The main investing avenues for that are the low-risk ones. Those dealing with debt and equity that come from stable players are the most suitable.
Going into the smaller details, the main three directions for investing after retiring should be debt (governmental and private), fixed income streams (rent) and equity. Financial derivatives, Forex and other high risk avenues should be avoided at all cost.
Trends and geography of investments also play a role in the choice of an investment type for senior investors.
Owning property in a central location of a city is great. Nevertheless, it’s not the same for owners of property in stable and volatile regions.
Trends come and go, but many play an irrational effect on a market that can leave the victims without funds. Even if a trend seems irrational and quick to leave, it’s important to remember that many will buy into it. Hence, sometimes it is better to go with the crowd.
Final, but important tip: some blue chip stocks will fall far more easily than their lower quality counterparts. Some blue chip stocks seem to have an ability to counteract rumours and even legal investigations. For others, just one scandal can annihilate their market capitalization. If one scandal can destroy even 20% of the value of a company, it’s better to avoid investing into it, if possible.
Strategies for the golden years
Having a strategy for investing after retirement is essential. A strategy helps to not lose sight of the investor’s goal. Through the avoidance of unnecessary trades, it becomes far easier to analyse own mistakes or to change the strategy for the better. When non-investment incomes tend to decline, strict discipline and a plan for investing helps.
Avoiding the bottom at all costs is the first strategy. It’s for the most conservative investors, and those that are looking to spend as little time as possible.
If senior investor was looking to adhere to this strategy, the suitable venues to invest in would be those that are the most unlikely to lose value. Meaning, those not subject to high price volatility and factors that contribute to change.
The avenues to invest for this strategy are high quality governmental and corporate debt, real estate, and inverse and regular ETFs (both at the same time).
This strategy is not a good fit for retirees looking into any financial difficulties into the future. It won’t add to wealth building, but only to its protection.
In addition, these avenues won’t protect wealth during global catastrophes. For people preparing for them, investing into skills, tools, or a business that thrives during tough times, should be the best choice.
Keeping at the top with low growth is a strategy for retirees looking to take on more risk, but also higher growth. Most fitting investments for this strategy are those with low to medium returns, but also medium volatility.
For investors following this strategy the choices for investment avenues would range between an alternation of inverse and regular ETFs, middle quality governmental debt, long-term investing into currencies of developed countries, and mutual and hedge funds.
Senior investors following the strategy should be prepared for some wealth depreciation. However, it should be offset with dividend and interest payouts.
Medium growth with higher risk is a strategy that is a good fit only for investors already in a difficult financial state. This strategy carries the highest risk of loss, thus it is most likely out of the three strategies for the golden years to lead to an even worse financial state.
Some of the investments that can fit the strategy of medium growth with higher risk are inverse and regular ETFs up to double leverage, middle quality corporate debt, municipal debt, index funds.
This strategy of accepting higher risk for retirement investments is not a good fit for seniors whose pensions could decrease. Also, to ones that won’t have other financial support apart from investments and retirement income, if they incur large losses.
Generation of income from investments
Some income-generating investments are the best for a safe retirement. There isn’t a definite ranking of income from investments. Yet, there is a clear division of income-generating investments best suited for the working, and the retired.
The division happens between investments that require regular supervision, and those that don’t. For the working population there may be enough pay-off to supervise their income generation investment streams. The retired are often more interested in other pursuits.
Areas like investing into high value objects, uninvolved investing into real estate, and uninvolved rent and debt, are the best option for those who value their time.
Investing into art is one of the ways to invest into high value objects. The simple guide to art investing details how to start on this path of investing.
It may not be obvious that it is possible to generate constant income from art, however it is possible. Both artists and art owners can rent out the art they own. Thus, generating an income stream that requires almost zero attention being paid to it.
Investing into real estate, be it in the form of buying to collect rent, or to take advantage of rising property prices, takes up time and effort. Renting, even with the help of rental agencies, can become almost like a second occupation.
To take advantage of the opportunities the real estate market offers without as much involvement, many use real estate crowdfunding. Real estate crowdfunding pros and cons. Profit from real estate crowdfunding looks into this form of income generation. This generation of income not only requires very low involvement from the side of investors, but also deals with a necessity for all individuals.
Other uninvolved investing into rent and debt can also generate passive income for retirees. These include renting out lower value objects, and crowdfunded debt for individuals. Although they come with more risk, they also can generate higher incomes.
After retiring, many will find it difficult to cope with losses from volatile prices of their income-generating investments. That’s why it is important look into the volatility and payoffs of investments that generate income.
The profit from the income-generating investments range from 50%-100% yearly returns for low value objects, 10%-20% for crowdfunded debt, and up to 10% for high value objects and real estate crowdfunding. When volatility is taken into account, rent of high and low value objects have the best profit to volatility ratios.
High and low risk investments
Most retirement investing advice centres around the avoidance of high risk investments before and during retirement.
Data trends show that high risk investments rarely come with returns that can beat low risk investments. By comparing the S&P 500® index and US Treasury bond returns over 20 years, the US Treasury bonds deliver a better performance .
Not only does the low risk investment deliver a better performance, but it also pays out more dividends (interest) compared to stocks which compose the S&P 500®.
The trend of better performance of low risk investments is important for senior investors. An obvious choice would be to fully invest into the higher risk asset (equity) and forego the low risk (bonds) one. However, an unconventional look at them should serve as a warning.
In the long term the higher risk assets have delivered a worse performance. Yet, in the short term, the investors in the low risk assets will lose out on high asset appreciation, and will have to cope with lower gains.
For investors investing after having retired, long term gains have a possibility of not arriving in time. If the gains are being chased with an intent to leave them to others, then it shouldn’t be a problem. If the gains are only for the personal gain of the investor, it could be more rational to receive them early on.
Comfort above all
The golden years are for everything the retiree looks to fulfil. Some prefer taking in the world at a slower pace, while others are looking for a faster tempo.
For both categories of retirees, financial worries could dampen the pursuit of personal fulfilment. Hence, when investing, personal preferences should be prioritised, and any drawbacks that investments come with, analysed. After all, comfort can be far more fulfilling compared to any gains.
Disclaimer: this article is not intended to be taken as investment advice. All losses or profits are the sole responsibility of the investors.