Saving v Investing for older people

RG2015

There is much talk on this board about the inflation risk when choosing savings accounts as opposed to investing larger amounts of cash.

Investments are for the longer term, 5 years plus, but at what age does this become too great a risk?

Health and life expectancy are clearly issues here, but have advancing years affected your financial decisions?

InvesterJones

Depends if you're investing to take benefit yourself while you still can or if you don't have need of the money and it's more about what you can pass on so timeframe would be nearer end of life -7 years. If only we knew when that was!

There's a good pensioncraft video on risk/return in the medium (3-5 year) term and it's basically a chances game - you move investments to bring the level of risk of making a loss in your expected timeframe to a level you're comfortable with. So that question of what you need the money for is really key - if you know you will need it you're more likely to chose an investment with a lower risk of making a loss. If you know you don't absolutely need it then you can take a higher chance of a short term loss in order to have a chance of greater gain (even in the short term).

ColdIron

When I retired I reallocated over half of my portfolio(s) to income producing investments as that is the job I need them to do now rather than pure growth. Dividends and other distributions are far more stable than share prices which are of a lesser concern to me now. If you've done it right you no longer need to 'shoot the lights out'

As long my investments continue to do the job I require them to do I see investing as a valid source of income, far more so than cash. I'll worry about their absolute value as I near shuffling off this mortal coil. Who knows, I may require residential care but in all likelihood they will form part of my estate which makes them an SEP (Someone Else's Problem)

Rollinghome

Thanks for the thread, I think we could do with a few more for us oldies who, in some cases, with ultra-low interest rates, and falling bond prices, have had a tough time of late. I think it's going to depend on a lot of factors that, as always, differ between individuals, regardless of age.  Some may be in a position to take on significant risk, and others not.

So, in answer to your question: my financial decisions haven't changed too much.  That said, I have been putting a sizeable proportion into multi-asset funds for the last few years, mostly into CGT and to a lesser extent PNL, which I previously wouldn't have gone near.

I've also let a larger amount of cash build up than I would have done previously. But no equity holdings have been sold down, apart from some top-slicing to reinvest elsewhere. I sold out of all bond funds a couple of years back - but have never heavily invested in them anyway.

I'm lucky to have decent I/L pensions coming in, no mortgage of course, so that I'm still able to pay more into investments and haven't touched my SIPP.  I now think of it as managing money for whoever inherits it.  Some will go to my family, up to CG tax limits, the rest to charities that I've been associated with in the past.  Logically, more could go to those charities now, but I want there to be as big a buffer as possible, so that my wife will be comfortable, come what may, and no matter how long we're around.

My mother developed Alzheimer's when she was 15 years younger than I am now, so the costs associated with that terrible illness is something else I factor in.

Where it's really difficult for older people, is where they don't feel able to take risk and have been hammered by sub-inflation interest rates and bond prices tumbling - caught by the stealth-tax of financial repression to pay off government debts. The best they can do is to try to calculate their risk versus reward and make a plan that's appropriate for them.

labp04

Rollinghome said:

Thanks for the thread. . . . .  The best they can do is to try to calculate their risk versus reward and make a plan that's appropriate for them.

And can I add something about whilst being confident that their rainy-day money is adequate (2-3 years income seems to be a regularly recommended amount) and that they only invest money they "can afford to lose".  

RG2015

labp04 said:

Rollinghome said:

Thanks for the thread. . . . .  The best they can do is to try to calculate their risk versus reward and make a plan that's appropriate for them.

And can I add something about whilst being confident that their rainy-day money is adequate (2-3 years income seems to be a regularly recommended amount) and that they only invest money they "can afford to lose".  

This is the standard advice for gambling. I don't believe it is appropriate for those considering investing.

If I have £50,000 to invest, I will not expect to be prepared to lose £50,000.

It may lose some value, it may gain some value, but as long as the investment is honestly managed, I would not expect it to lose more that 25% to 30% and that would take a serious crash, like the pandemic.

Following the first lockdown, my investments fell by 27% (from 01/01/2020 to 20/03/2020), but 2 years later they had fully recovered.

dunstonh

Investments are for the longer term, 5 years plus, but at what age does this become too great a risk?

It depends on what will happen with the money on death and life expectancy.  Broadly speaking, if you have got to your 80s without investing then its probably too late to start now.   If you are in your 70s and good health for your age, then no reason why investing should be off the table.

InvesterJones

Rollinghome said:

Where it's really difficult for older people, is where they don't feel able to take risk and have been hammered by sub-inflation interest rates and bond prices tumbling - caught by the stealth-tax of financial repression to pay off government debts. The best they can do is to try to calculate their risk versus reward and make a plan that's appropriate for them.

Agreed. Bonds have been shocking of late. QE = bad. Inflation = bad. Ending QE and raising interest rates = bad. Correlation with equities? Bad for diversification.

Of course, there are quite distinct categories of bonds which can behave quite differently.. but there's not been much good news unless you're an early mover and are speculating on what other investors will do rather than looking for underlying bond performance

Albermarle

labp04 said:

Rollinghome said:

Thanks for the thread. . . . .  The best they can do is to try to calculate their risk versus reward and make a plan that's appropriate for them.

And can I add something about whilst being confident that their rainy-day money is adequate (2-3 years income seems to be a regularly recommended amount) and that they only invest money they "can afford to lose".  

This 'afford to lose' doesn't not really make any sense in relation to mainstream investing for the longer term,
It is better to say only invest money that you will not need for a few years, or for many years if it is a pension,  and stick to mainstream diversified investments .

Only if you are investing in very high risk areas, like individual company shares, bitcoin etc does the 'afford to lose' really come into play.

Audaxer

RG2015 said:

There is much talk on this board about the inflation risk when choosing savings accounts as opposed to investing larger amounts of cash.

Investments are for the longer term, 5 years plus, but at what age does this become too great a risk?

Health and life expectancy are clearly issues here, but have advancing years affected your financial decisions?

I think if you are retired and your investments are in a pension or S&S ISA, they are usually still there for the long term as most retirees will be anticipating taking income from them for the rest of their lives, however long that may be.

It used to be that you could dial down the risk in retirement by having a greater percentage in bonds than equities. I'm not sure that applies any more with the mostly negative outlook for bond returns. 

Newly_retired

Apart from a sum I wish to have available in cash, in case of need, my savings will ether be used for my care needs or will form part of my estate. Mid seventies, in reasonably good health, it is hard to know which is the greater risk: losing a third to falling investments, or to inflation of cash accounts. Nobody has a crystal ball.