Exploring shares and stocks as a sound investment option for retirees

Retirement is a significant milestone in a person’s life, and many retirees are looking for ways to make their retirement years comfortable and financially secure.

While relying on savings and superannuation can help fund retirement plans, it can be beneficial to explore alternative investment options.

Investing in stocks and shares is a popular option among Australian retirees who aspire to build their wealth and generate income during retirement.

To gain a deeper understanding of the advantages and disadvantages associated with investing in shares and stocks, Starts at 60 conducts an in-depth analysis of key factors to help you determine if this investment approach is suitable for you.

What are Shares and stocks?

Shares, stocks, or equities, represent ownership in a company. When you invest in shares, you are essentially buying a small portion of a company, which means that you become a shareholder and have a say in the company’s decisions. The value of your shares will rise or fall based on the performance of the company and other market factors. Shares can offer the potential for capital appreciation, as the value of the shares may increase over time, and they may also provide income through dividends, which are payments made by the company to its shareholders.

Certified Financial Planner, Daniel Rickard from Illuminvest explains that “investing in high-quality companies with a history of consistent dividend payments can provide a regular income stream for retirees.”

“These stocks can also offer potential capital appreciation over the long term. Retiree’s also benefit from franking credits which can provide tax rebates when in a low-tax environment (e.g. Super),” he says.

Shares and stocks can be a potentially beneficial way to grow your retirement savings, but it’s important to approach them with caution and a long-term mindset while weighing up the pros and cons.

Benefits of investing in shares and stocks

Investing in shares and stocks can be an excellent strategy for retirees looking to generate income and secure their financial future. With the potential for high returns and the ability to diversify one’s portfolio, investing in the stock market can provide you with a steady stream of income and a reliable long-term investment strategy. Some of the benefits that can come with investing in shares and stocks include:

• Potential for Higher Returns: Shares and stocks have historically provided higher returns compared to other investment options such as bonds and cash. This potential for higher returns can be beneficial for retirees looking to grow their wealth and generate income in retirement.
• Diversification: By investing in shares and stocks, you can diversify your investment portfolio and reduce risk exposure. By owning shares in different companies across various industries, you can spread the risk and protect yourself from significant losses in any one particular investment. This is especially important for retirees who are relying on their investments for income in retirement.
• Passive Income: Retirees can generate passive income by investing in shares and stocks that pay dividends. Dividends are payments made by companies to shareholders as a portion of their profits. This income can be used to supplement retirement income or reinvested for future growth.
• Inflation Hedge: Shares and stocks can act as an inflation hedge. As the cost of living increases, the value of stocks tends to rise, which can help you maintain your purchasing power over time. This is especially important for retirees who are living on a fixed income and are vulnerable to inflationary pressures.

Downsides of investing in shares and stocks

While investing in shares and stocks can offer retirees many benefits, it’s important to understand that there are also potential downsides to consider. Some possible downsides that can come with investing in stocks and shares include:

• Volatility: The stock market is subject to volatility, and share prices can fluctuate rapidly in response to economic and market conditions. You need to be comfortable with the possibility of significant short-term losses in your portfolio.
• Risk: There is always a risk of losing money when investing in shares and stocks. It’s important to understand the risks involved and invest only what you can afford to lose. However, by diversifying your portfolio and investing in quality companies with a track record of financial stability, you can reduce your risk exposure and increase your chances of long-term success.
• Complexity: Investing in shares and stocks requires knowledge of the stock market, companies, and economic conditions. You should be prepared to spend time researching and analysing investments to make informed decisions.

What retirees need to consider before investing

As retirees consider how to manage their finances in retirement, investing in shares and stocks can be an attractive option for generating income and building wealth. However, before making any investment decisions, it’s important to consider a variety of factors to ensure that the investment aligns with one’s financial goals.

Stockspot’s Head of superannuation and partnerships, Enid Lal highlights that “it’s important that you consider your personal circumstances such as how much income you require, your health, lifestyle, and your risk tolerance when choosing an investment option.”

Some considerations you should take into account when deciding if shares and stocks are right for you include:

• Financial Goals: Retirees need to consider their financial goals before investing in shares and stocks. Are you looking to generate income, grow your wealth, or a combination of both? Understanding your financial goals will help you determine your investment strategy and the types of shares and stocks to invest in.
• Risk Tolerance: Retirees need to understand their risk tolerance before investing in shares and stocks. Are you comfortable with the possibility of short-term losses, or do you prefer a more conservative investment approach? By understanding your risk tolerance, you can create a diversified portfolio that meets your investment goals while also minimising your risk exposure.
• Time Horizon: Retirees need to consider their time horizon when investing in shares and stocks. How long do you plan on holding your investments? Understanding your time horizon will help you determine your investment strategy and the types of shares and stocks to invest in. For retirees who have a longer time horizon, investing in growth-oriented shares and stocks may be more appropriate, while retirees who have a shorter time horizon may prefer to focus on income-generating shares and stocks.
• Fees and Charges: Retirees need to be aware of the fees and charges associated with investing in shares and stocks. These fees can include brokerage fees, account management fees, and administration fees. By understanding the fees and charges, you can choose investment products that are cost-effective and align with your investment goals.

Investing in shares and stocks can be a smart investment option for Australian retirees looking to grow their wealth and generate income in retirement. By diversifying your portfolio, you can reduce your risk exposure and increase your chances of long-term success.

However, before investing, you need to consider your financial goals, risk tolerance, time horizon, and fees and charges. With careful planning and research, investing in shares and stocks can be a rewarding and profitable experience for Australian retirees.