I have recently entered my eighth decade (I am 71). Is it too late for me to make ‘long-term investments’?
Anonymous, via email
Most people are told that when it comes to investing, they should start young and buy risky assets – typically the stock market – as they have decades before they will need it.
When they get older and have more money at stake, investors are told to be more cautious, buying more bonds and focusing on maintaining their wealth as their need for the money may be nearing.
At 71, you are (probably) retired and living off a pension pot that you have accrued throughout your professional career.
So, should you be taking risk and investing for the long term at your age? First, it is worth defining long term. Many believe this is anything beyond the next five years.
The Office for National Statistics says that men aged 71 today can, on average, expect to live to 86, while, at 88, women live even longer.
Claire Walsh at Schroder Personal Wealth, an advice firm, said: “Age is a number which needs to be taken into account, but should not be the defining factor on whether you receive advice.”
More important is what you need the money for. Is your pension providing enough for you to live on? After all, the biggest risk in retirement is becoming too cautious and running out of money.
A £500,000 portfolio might sound like a lot, for example, but withdrawing without making a return would leave you running short of cash in a hurry, as the below chart shows.
So it is important that, while you have some left in reserve for income, the remainder is invested. Most people would recommend a split of bonds and stocks, but the more you have in cash reserves, the more aggressive and long term you can afford to be.
Donald Brown at wealth manager Brewin Dolphin pointed out that at 89 years-old, Warren Buffett – a phenomenally successful investor – still declares himself long term.
“It is all about the ‘capacity for loss’ – the financial and mental strength to ride out any market turbulence," he said.
Although you might be a little more cautious with your portfolio as a whole, there is no reason you shouldn’t be long term with at least a portion of your funds, providing you have enough to cover your expenses.
Of course, if you have excess money that you want to invest for your grandchildren, you might want to consider gifting it to avoid inheritance tax while retaining control of what it is invested in.
For more information, read our series on how to invest £10,000 at different age groups, including investors in their 70s.