General financial advice for my elderly readers
I love it when reader feedback gives me the opportunity to revisit a popular topic...
Yesterday one of my readers, John C., e-mailed me the following:
Whitney,
I do enjoy your daily newsletter and I have been a Stansberry Alliance member for many years as well as your investing service prior to you joining Stansberry.
I am 75 now and holding for the long term seems to not fit where I am in life. I am sure there are many folks in my age group who read your writings.
Could you share some thoughts about what people who don't have a long horizon should be doing with their portfolios?
Again I look forward every day to your letter.
Thank you for your kind words, John!
The opportunity to share sound, conservative investment insights to more than 100,000 average folks (like my parents) every day is one of the reasons why I decided to join Stansberry Research.
That came after nearly two decades of managing hedge funds, where – let's be honest – I was helping a handful of rich people get even richer.
John asks an excellent question... And it gives me an opportunity to update one of my favorite e-mails on general financial advice for my retired readers back on October 12, 2021.
Now, keep in mind that Stansberry Research is a publisher, not an investment adviser. I can't give specific advice to any individual. And of course, everyone's financial situation is different – so what you do depends on a variety of factors (your net worth, income, age, risk tolerance, family structure, where you live etc.).
So today, I'll share general thoughts for older folks, based on what I've heard from many different readers...
First, John is correct that a 75-year-old needs to think differently about investing than a 25-year-old.
First, the time horizon is much shorter – the average life expectancy of an American 75-year-old is about 10.6 years for men and about 12.5 years for women. (That said, those in good health should be planning to live at least another 20 years.)
Also, older folks are likely retired and drawing down on their savings rather than adding to them. (Though not always – the hypothetical couple in my October 2021 e-mail had income of $75,000 annually from a pension and Social Security, and expenses of only $50,000.)
So it's clear that older folks, in general, should invest more conservatively than younger ones.
But how much more conservatively depends on many factors – most importantly, life expectancy, total assets (and how much is liquid versus, say, tied up in a house), and annual income and expenses.
The most important piece of advice I can give to anyone is: The surest way to get poor quickly is to try to get rich quickly.
People under financial pressure tend to swing for the fences.
And with the market soaring to all-time highs and the "gamification" of investing – hyped by the media, Wall Street, and brokers like Robinhood (HOOD) – more and more people are being sucked into rank speculation. Think short-dated options and meme-stock garbage like GameStop (GME) and AMC Entertainment (AMC), which I've been warning my readers about for years.
Don't fall into this trap!
Sure, if you're extremely lucky, you might be able to get in, catch a pop, and get out. But the far more likely outcome – not 50%, but 90% odds – is that you get incinerated.
I don't care if you're 25 or 75 years old... If you have a time horizon of at least five years, the surest route to long-team wealth is having the bulk of your savings in quality blue-chip stocks.
The easiest, cheapest way to do this is to simply invest in an index fund via a brokerage (my favorites are Vanguard and Fidelity, as I've outlined in previous e-mails here, here, and here) or buying an exchange-traded fund that tracks the broad market.
Alternatively – or in addition (I do both with my own savings) – you can buy a small number of carefully selected high-quality stocks and hold them for many years.
I discussed this concept in yesterday's e-mail with an example from Stansberry Research's flagship monthly newsletter, Stansberry's Investment Advisory: candy and snack maker Hershey (HSY).
As I explained, the stock has been in the Investment Advisory model portfolio since 2007... and readers who followed the advice to buy back then – and, equally importantly, the advice to continue holding to this day – are up 460%.
Another example is Berkshire Hathaway (BRK-B), which is the only stock I mentioned by name in my October 2021 e-mail. As I said back then:
I continue to believe [Berkshire] is the No. 1 retirement stock in America thanks to its combination of growth and, more importantly, safety. It's my favorite stock for the foundation of a "stay rich" (as opposed to a "get rich") portfolio. And best of all, it's trading today well below the price that CEO Warren Buffett has been buying it, as I discussed in my September 23 e-mail.
It was a great call, as Berkshire is up nearly 50% since then – roughly double the performance of the S&P 500 Index:
Finding stocks like Hershey and Berkshire and sharing them with our subscribers so that they can build long-term wealth is our mission here at Stansberry Research.
(I'll note that right now, you can become an Investment Advisory subscriber for only $49 for the first year – and we offer a 30-day money-back guarantee, so it's 100% risk-free to give it a try – by clicking here.)
But what about cash?
For years, this was a terrible option because interest rates were close to zero. But now, you can earn around 5% annually owning risk-free U.S. Treasurys.
A 95-year-old with a comfortable nest egg might very rationally own nothing else... But what about a 75-year-old with a 10- to 20-year life expectancy?
As you would expect, the answer depends on many factors... but generally speaking you could split the difference, putting somewhere between 25% and 75% in cash and the rest in stocks.
If you're currently below your target allocation to stocks, you can consider dollar-cost averaging.
So, let's say you have $200,000 in a retirement account that's currently half cash and half stocks, and you decide to shift this to 25% cash and 75% stocks.
That means you need to shift $50,000 to stocks... which, if you dollar-cost average, might entail moving $10,000 now and in six, 12, 18, and 24 months.
In this way, you get to your target equity allocation in two years and also have plenty of "dry powder" to put into stocks more quickly if there's a significant market pullback of, say, 20% or more.
Interestingly, in my October 2021 e-mail, I wrote:
I suspect many financial advisors would advise this [hypothetical] couple to put a significant amount of their savings in higher-yielding bonds – either longer-dated and/or riskier ones – but I'm worried about rising interest rates (which would crush long-term bonds) and the paltry yields relative to risk with corporate and municipal bonds.
To use a phrase coined long ago by Jim Grant, bonds in general these days in my opinion offer "return-free risk" (as opposed to what they're supposed to offer: risk-free return).
This turned out to be excellent advice as well, as the yield on a 10-year Treasury on that day was a mere 1.59%. Today, it has risen to around 4.25% – meaning those who bought only 32 months ago have suffered a significant loss on an investment that was supposed to be super safe.
Today, I'm not worried about the risk of rising rates... so you could consider allocating cash to a mix of short-term money-market funds or Treasurys yielding a bit more than 5% and longer-term cash holdings to five- and 10-year Treasurys yielding a bit more than 4%.
One thing that hasn't changed since then – my final thoughts:
My last piece of advice to older folks who are in strong financial positions is not to be too frugal – something I regularly lecture my parents about. They are real penny-pinchers, which, over a lifetime, is how they have achieved financial security. But now that they've achieved it, they should enjoy it by spending some money – not on material goods, but rather experiences. Extensive research shows that this is what leads to the greatest happiness, as outlined in these articles: Buy Experiences, Not Things and Why Experiences Are Better Than Things.
Of course, as regular readers know, I love to travel. And if you do, as I continued:
For those who like to travel, go see this magnificent country. Rent an RV and take a trip, as [my wife] Susan and I did last month. If you enjoy it, buy an RV and take regular trips. And don't forget international travel – there's a vast, incredible world to explore!
And don't forget to include your family – in my opinion there's nothing better than spending time with your siblings, children, and grandchildren. Pay for your children and their families to join you on a cruise in Alaska or a beach vacation in Mexico, something my in-laws have done for us.
I'm just throwing out ideas – it's up to every couple/family to decide on the details – but you get the picture...
That would inevitably lead to a big question: How much should you spend on these experiences?
I answered that in the context of my hypothetical couple:
There's no definitive answer, but here's how I'd think about it: Since they have annual income of $75,000 and only need to spend $50,000 to cover their basics, then I'd suggest that they budget $25,000 every year to have wonderful experiences.
I'm glad to say that my parents have started listening to me on this front...
They took a trip with a friend to Oman earlier this year. And just three weeks ago, they flew from Kenya (where they've retired) to London to attend another friend's wedding.
They invited me to join them and stayed an extra four days, during which we explored Scotland – here's a picture of us (I posted more on Facebook here, here, and here):
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.