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.
1. Preserve Thy Capital
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 favor – 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, that’s not always the case – as many of us have learned (the hard way)!
The same is true of real estate. We all know about the huge downturn in the U.S. market with all the foreclosures.
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.
An example: 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 you 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.
Disclaimer: Always seek sound financial advice from a trusted professional before parting with your money.
Editor’s Note: Dr Adele Thomas, semi-retired medical doctor and Dr Ely Lazar, retired chiropractor, are on a new mission as the Passionate Retirees. They are dedicated to inspiring the over 50s to live fulfilling and adventurous lives, so that “the twilight years will be the highlight years”. Their book, “Travel Secrets For Seniors” was released in early 2014. With more than 80 years combined of professional experience, their articles, books and workshops cover a range of topics from travel, health, relationships, sexuality and finances for seniors.