How Much Should 65-Year-Olds Have Invested In the Stock Market?

Watching your investment portfolio too closely may be a recipe for disaster, but so too is neglecting to modify it as you age. While everyone would love to have the biggest retirement nest egg possible, you’ll have to construct your portfolio based on your own individual investment objectives and risk tolerance — and these change as you get older. When you’re young, you can better afford to ride out the ups and downs of the stock market in an effort to achieve the highest total account value. But when you reach retirement age, that may not be true.

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Most seniors need to shift at least a portion of their account balances into income-paying investments by the time they retire, to supplement their Social Security payments and any other sources of income they may have. So, should you still have any money at all in the stock market at age 65? The answer will vary from person to person, but here are some strategies to consider.

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Generally Recommended Allocation for 65-Year-Olds

Traditionally, financial models recommended that investors subtract their age from 100 to determine the percentage of their portfolio that should be in stocks. For example, if you were 65, you should have 35% in stocks under this model, as 100 minus 65 equals 35. But as Americans have begun to live longer, many of these models bumped up the starting number to 110, or even 120, meaning a 65-year-old should have closer to 45% or 55% in stocks.

Respected investment firm T. Rowe Price has a model that’s closer to this more modern version of allocation, recommending that investors in their 60s have 45% to 65% in stocks, with 30% to 50% in bonds and 0% to 10% in cash. Charles Schwab recommends an allocation of 60% stocks, 35% bonds and 5% in cash for investors ages 60-69.

Some investors may instinctively feel that this is too high of an allocation, as they’ve been told for years that they should reduce or even eliminate risk from their portfolios as they approach retirement. But this can cause long-term financial problems. As many seniors will now live for 25 years or more in retirement, not having an adequate allocation to stocks may leave them with underfunded accounts. If you have a 25-year investment runway, avoiding stocks entirely can be a mistake, as the market has never had a 20-year rolling period in which it lost money.

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What Types of Stocks Should You Own If You’re 65?

While most older investors should still own some amount of stocks, that doesn’t mean their portfolios should be as aggressive as when they were younger. In your 20s, for example, you might want to speculate a bit on stocks with big growth potential, like biotechnology stocks or up-and-coming tech stocks. But your need for hypergrowth should be over by the time you reach age 65. At that point, while you don’t want to give up growth altogether, your stocks should generally trend toward the blue-chip variety.

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One solid option for many seniors is to invest in high-paying dividend stocks, most of which are considered blue chips. Generally, these types of companies pay solid and rising dividends, maintain strong positions in their industries and have a near-zero chance of a calamitous ending. With dividend stocks, you can live off the income stream without worrying as much about the day-to-day value fluctuations in their value, as they are paying you a current return. Over time, a well-selected portfolio of blue chips should also rise in price.

Popular blue chips in 2024 that pay solid dividends include Coca-Cola, Procter & Gamble, Johnson & Johnson, Walmart and JPMorgan Chase.

What About the Balance of Your Portfolio?

For the non-stock portion of your portfolio, you should pick a bond allocation that matches your need for income and your risk tolerance. For example, if you have all the income you need and just want bonds to provide safety for your account, you can buy low-yielding, high-quality investments like short-term Treasury bills. If you’re looking for a more significant amount of income, you may have to accept a bit more risk. Longer-term bonds and preferred stocks, for example, can boost your income but will fluctuate more in value in response to moves in market interest rates. Higher-yielding mutual funds and ETFs can generate even more income through the use of leverage, but that again involves accepting more risk. This is why it can pay to speak with a financial advisor so that you can get the right balance of risk and reward to meet your financial needs.

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