Is it smart/ever smart to get completely out of the stock market at a certain age?
I am not worried about earnings — I am concerned about protecting my principal. At age sixty-five, I don’t have a lot of time to recover from another hit. I barely survived 2000 and 2008-9. I do not intend to take my Social Security until age seventy. I am getting survivor benefits now which I am banking 100%. I am living on my investments and feel like I have enough to last me.
Thank you for your attention.
This is an extremely common investing question for pre-retirees, so I’m looking forward to working through this with you. Let’s start with some questions you need to ask yourself.
•Can you achieve your financial goals without taking market risks?
•Can you achieve your financial goals without the returns that sometimes come with market risks?
•Can your financial goals be waylaid by inflation?
•Are you subject to other types of risk by not participating in the stock market?
Pre-retirees or not, many people view the stock market as a necessary evil. You feel uncomfortable about using it, but you don’t see other options as viable. That isn’t reality though. You don’t have to keep your money in the stock market in order to grow or maintain your funds. I can think of several friends off the top of my head who have never used the stock market and are doing just fine. Though, just as using the stock market means risking loss, not investing in the stock market comes with its own consequences.
“When you forgo investing in the stock market, you undoubtedly abandon the ups and downs, but you also abandon the ability to easily keep pace with inflation. Inflation erodes the buying power of your money. Simply put, $10 in 2015 buys you a lot less than $10 bought you in 1995.” (courtesy of Indy Star)
If you aren’t too worried about the impact of inflation on your funds, and you aren’t relying on higher returns to make your money last, then you are probably safe to remove your funds from the stock market.
What often happens in situations like this is investment objectives get muddled.
“The default objective has morphed over the years into capital appreciation (growth), for a number of different reasons. In my opinion, this default objective has confused investors who don’t actually consider capital appreciation to be their top priority. Additionally, when an investment objective isn’t communicated to or discovered by a quality financial professional, then a recommendation born from capital appreciation can occur. That’s a major problem. Then you’ll see people taking market risk for absolutely no reason.” (courtesy of Indy Star)
CMB, your true investment objective is capitol preservation. Go with your gut on this one.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.