As we get older, the odds of accumulating wealth diminishes simply because the number of remaining years are decreasing.
Many seniors today find themselves in dire straits because of a failure to institute sound investment and savings strategies, but also because of outside factors such as the Global Financial Crisis of recent years.
People that had secure jobs found that their jobs disappeared because of the downturn and so they had to dip into their savings (if they had any).
The good news is that even if you are over the age of 50, you can start to implement sound strategies. The sooner you start the better. Here are some things to consider.
This is an age-old principle and so true. It is better to earn small returns than risking a substantial portion of your capital on a high risk investment.
The get-rich-quick schemes abound, with seniors and retirees often succumbing to these. Seniors are susceptible to phone and online scams in which the scammers use persuasion and trickery in order to divest people of their money.
Do yourself a favour – don’t invest a substantial portion of your money until you have received sound advice from a trusted financial adviser.
2. Layered Investing
Your investment strategy needs to be a layered structure, like a pyramid.
a) The base of the pyramid needs to be your cash base; secure and fluid without being exposed to high risk situations. Sure, keeping cash may not be sexy (particularly with current low interest rates) but it is safe.
b) The next layer up needs to be in longer term cash investments such as Term Deposits, Certificates of Deposit or U.S. Treasury Bills.
c) Then we move up to real estate or blue chip stocks which are sound but are susceptible to fluctuations based on market conditions. Some people believe that these always go up over time. However, if you had invested in the Australian stock market in 2007 when it was at 6873 points, it means that 6 years later you have still lost 25% of your capital.
The same is true of real estate. We all know about the huge downturn in the U.S. market with all the foreclosures. Even in Australia, coastal resort towns such as Mandurah, WA are down significantly from their peak values of 6 years ago.
d) The 4th layer up is small cap stocks. These are the more speculative type of stocks
which can give great returns but are less stable than the larger companies.
e) In the top level only invest a small portion of your money in things like commodoties, options and other derivative instruments. If you invest in these, accept that this is money that you can afford to lose, otherwise don’t even go there.
3. Take Direct Control Of Your Money
The term ‘empowerment’ has been in vogue the past few years and it certainly applies when it comes to maintaining your financial health.
While others may have good intentions with your money, they are not as invested as you are-after all, it is not their money. In addition, there are many investment vehicles where once you have your money there, it may be very difficult to get your money out.
A good example are unlisted property trusts. This happened to us 23 years ago when we invested in one of these trusts. It was highly touted by one of the major banks. What we didn’t appreciate at the time was that we didn’t actually own the property, but only some ‘bricks’ in this major commercial property. The investment soured, funds were frozen and ultimately, we couldn’t get our money out.
One aspect to consider when evaluating your investment choices is the level of emotional tolerance that you have. If your investment returns fluctuate more than +10% or -10%, there will be a tendency to get elated or depressed about what is happening. Either way, you may be tempted to make poor investments choices. If you are elated you may think that your are infallible, that you can’t lose. If depressed, you become desperate and are more likely to lose more money.
When you are in either state emotionally it is not a good space to be in for investing.
What have you done to secure your financial safety as you age?
Disclaimer: Always seek sound financial advise from a trusted professional before parting with your money.
Whether you are taking a cruise, hiking in the Rockies, touring the Vatican, or snorkelling in the Galapagos, for many seniors, travel can be stressful instead of fun. In this book, Ely and Adele show you the keys to avoiding the pitfalls so you may have a great travel experience, wherever you go. Their website will be live shortly and you will be available to purchase the book there.
Starts at Sixty is also excited to be running a giveaway of Ely and Adele’s book in February 2014 so keep your eye out for the competition!