Should Retirees Invest in Stocks?

The short answer is yes but there are some risks to consider like volatility risk, valuation risk and sequential risk.

Fernando Luque 22 July, 2021 | 16:07
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Not an Easy Question…

Should retirees invest in stocks? The question cannot be answered with a yes or no. It is impossible to give a single answer valid for all retirees since it will depend on many factors. It will depend on the wealth situation of each individual, on the time horizon (it is not the same to invest when one is 65 years old than when one is 80 years old) and above all, on the level of risk that everyone can assume (in theory the level of risk decreases with age so that retired people, even if they have a constant flow of income via their public pension, should be more risk-averse than a 40-year-old investor).

But we must also take into account current market situations and the question must be understood as follows: assuming that the retiree can assume some risk, should he or she invest in stocks if he or she has a medium-long term horizon and wants to obtain some return on his savings? The answer is yes. 

A long, long time ago, when interest rates were at 5 or 6% and bank deposits offered really attractive returns, retirees did not need to invest in stocks to get a decent return on their savings. It should also be said that when interest rates were high, inflation generally reached high levels as well.

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Fernando Luque

Fernando Luque  es el Senior Financial Editor de www.morningstar.es

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