Author: Tim Lemke / Source: Wise Bread
One common rule of thumb for investors is to move away from stocks into more conservative investments as you get older. The thinking behind this is that stocks always carry the risk of losing value, and that’s not something you want to see with your retirement fund.
But completely abandoning stocks may not be the right strategy, either. Holding some stocks in your portfolio can be a hedge against inflation, and can help ensure that your retirement money lasts as long as you do.
Here’s a look at some reasons why, even for older investors, stocks are always a good buy.
1. You may live longer than you think
Many people assume that once you approach retirement age, all of your efforts should be focused on protecting your assets rather than growing them. But the reality is that many retirees will need their money to last 30 years or more, and the only way to make money last that long is to continue to accumulate it.
Having some money in stocks will, in most years, allow you to replenish money that you spend from your portfolio. Consider this: If you have a nest egg of $1 million and spend $50,000 annually, your savings will be gone in about 20 years. But if you are able to add 4 percent to your portfolio each year from stocks, your savings could last another decade or more. (See also: 5 Ways Longevity Is Changing Retirement Planning (And What to Do About It))
2. Many stocks can be safe investments
We tend think of stocks as risky and volatile investments, but that’s not always the case.
Many stocks are actually very common and useful investments for people looking to bring stability to their portfolio.Dividend stocks are a common component of retiree accounts, because they generate income for the investor and generally don’t rise and fall dramatically in price. There are also some industries, such as consumer goods, that have offered steady returns year in and year out. Some stocks, such as Wal-Mart, are good bets even during bad economic times. You don’t have to lay off stocks entirely as you get close to retirement age. It’s just a matter of finding stable, income-producing stocks that can serve you well as you get older.
3. Markets rebound fairly quickly
No one likes to see the stock market take a big dive, but the good news is that it always goes back up. There are only a handful of times in history…
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