Early in 2024, the stock market is booming and inflation is decreasing. But that doesnt mean theres no risk for retirees.
The S&P 500 is up 15. 4% in the three months ending Jan. 23, even though it appears that both inflation and mortgage lending rates are declining However, household expenses are still high (particularly for food, energy, and consumer insurance), and there are actual risks to the economy and stock market due to the military conflicts in Gaza, the Ukraine, and other parts of the Middle East.
Toss into the mix a volatile U. S. With the upcoming presidential election and the growing influence of artificial intelligence on labor, 2024 looks to be anything but a stable year for investors.
Where should risk-averse investors draw the line if they are unsure about the stock market and prefer lower-risk investments at this time?
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Examine fixed-income instruments: investment-grade corporate bonds with a three- to five-year maturity currently yield roughly 5. 75%. According to Steven Wieting, chief economist at Citi Global Wealth, “that’s nearly twice as high as the Federal Reserve estimates its key policy rate will average over the same four years.” Hold-to-maturity bonds let you extend the term of higher rates at a fixed rate. For many U. S. When taxes are deducted, municipal bonds will also provide investors with a higher effective yield. “.
U. S. Even though Treasury yields have already dropped from their peak of almost two decades, Wieting doesn’t mind. According to him, “extending the bonds’ duration beyond Treasury bills can outlast any potential two-year Fed policy rate cut.” Since 1960, the Fed has only maintained its policy rate at its highest level for an average of seven months. “.
According to Mike Darkowski, the founder of Scrab, “dividend-paying stocks, especially those from established companies, often provide a reliable source of income.” com, a Dubai-based data-driven stock-picking company. These businesses usually have a track record of reliably paying dividends, providing stability even in the face of market swings. Whats more, they can act as a hedge against inflation. “.
According to Darkowski, “investors can benefit from rising income that helps offset the effects of inflation as companies increase dividends over time.”
Purchasing dividend-paying stocks has the potential to increase in value in addition to providing instant income. He continues, “Businesses that regularly pay dividends frequently demonstrate strong financial health, and their shares may increase in value over time, boosting total returns.” Nevertheless, dividend income can mitigate losses during market downturns if it is viewed as a component of portfolio diversification, potentially offering a more stable investment path. “.
Utility and electric stocks may gain after the Federal Reserve signaled that its more than two-year campaign of raising interest rates may come to an end.
“My favorite low-risk investments include electric utilities,” says Steven C. Connors, founder of Connors Wealth Management in Scottsdale, Arizona. According to him, the long-term bond market is connected to electric utilities and can be highly hazardous. Expected reductions in Fed rates should reduce that risk and increase utilities.
We’ve noticed a recent increase in positivity due to softening incoming data in the U S. economic front,” Connors says. “The Fed may not immediately accept lower rates, but eventually they might be willing to consider small rate reductions.” The majority of possible gains occur either ahead of or in preparation for a decline in interest rates. “.
“If the U. S. The economy is returning to the Fed’s 2% inflation target, which would make the current timing of utility stocks favorable. Additionally, he notes “Not only do electric utility stocks have significant discounts to the S&P 500, but wireless telecom stocks There are a lot of negativities priced into these companies. “.
Connors points to Verizon Communications Inc. (ticker: VZ), which pays a healthy six times earnings estimates for 2024 and is presently trading at roughly eight times 3% forward dividend yield. Additionally, he enjoys Reaves Utility Income Fund (UTG), a closed-end fund with an approximate 8 percent payout. 7% with a monthly distribution of dividends.
A fixed index annuity is among the greatest methods for producing low-risk cash flow in a shaky economy.
According to Connors, once an investor locks in the current rate on a particular income rider on a fixed index annuity, the insurance provider is obligated to keep paying that income even if future interest rates decline.
In addition to protecting your principal and offering a lifetime assurance that the income will continue for as long as you live (or you and your spouse), fixed index annuities, or FIAs, also guard against market losses.
“The account value of an annuity has a slight upward component as well,” Connors continues. “Look at historical returns to see whats possible. But unlike the amount of income a fixed annuity will give you each month and year, it is by no means a guarantee. “.
The rates on fixed annuities are currently artificially high, and it is unlikely that the annuity providers will maintain them at this level for very long.
On the other hand, he says, “Recall the period during the pandemic when mortgage rates were artificially low.” “You might consider yourself very lucky if you locked in your mortgage rate. The higher interest rate on the income-oriented FIAs could be the opposite. Over the long run, these short-term aberrations may be advantageous to you. “.
Simply confirm that the insurance provider has an excellent credit standing with the main rating agencies, advises Connors.
As you approach your 75th birthday, you’ve likely accumulated a lifetime of savings and investments. Now, the question becomes: how do you manage these assets to ensure a comfortable and secure retirement? While conventional wisdom suggests shifting towards low-risk options, there’s more to consider than simply avoiding risk.
This guide will explore various safe investment options for seniors, focusing on those in their mid-70s. We’ll delve into the pros and cons of each option, helping you make informed decisions about your financial future.
Key Considerations for 75-Year-Old Investors:
- Time Horizon: With a shorter time horizon, 75-year-olds need to prioritize income generation and capital preservation over aggressive growth.
- Risk Tolerance: While risk tolerance varies, most 75-year-olds prefer low-risk investments to protect their accumulated wealth.
- Income Needs: Retirement income needs should be factored into investment choices, ensuring a steady stream of income to cover expenses.
- Health and Life Expectancy: Health considerations and life expectancy can influence investment strategies, potentially requiring adjustments for long-term care costs.
Top Safe Investment Options for 75-Year-Olds:
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High-Yield Savings Accounts: These accounts offer higher interest rates than traditional savings accounts, providing a safe haven for your money while generating modest returns.
- Pros: FDIC-insured, readily accessible, low risk.
- Cons: Relatively low returns, may not outpace inflation.
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Certificates of Deposit (CDs): CDs offer guaranteed returns over a fixed term, ideal for parking a portion of your savings for a specific period.
- Pros: Higher interest rates than savings accounts, FDIC-insured, predictable returns.
- Cons: Early withdrawal penalties, limited liquidity.
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Treasury Bills, Notes, Bonds, and TIPS: Backed by the U.S. government, these investments offer low-risk, guaranteed returns, making them a safe haven for your retirement funds.
- Pros: Government-backed, low risk, predictable returns.
- Cons: Lower returns compared to other options.
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Dividend-Paying Stocks: Well-established companies with a history of dividend payments offer a reliable income stream, providing stability and predictability for your retirement income.
- Pros: Consistent income stream, potential for capital appreciation.
- Cons: Stock market volatility, possibility of dividend reductions.
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Money Market Accounts: These accounts offer higher interest rates than traditional checking accounts, providing easy access to your funds while earning a modest return.
- Pros: FDIC-insured, readily accessible, higher interest rates than checking accounts.
- Cons: May require minimum balance, interest rates may not outpace inflation.
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Fixed Annuities: These contracts offer guaranteed income streams for a set period, providing peace of mind and financial security in retirement.
- Pros: Guaranteed income, protection against market volatility.
- Cons: Early withdrawal penalties, potential for high fees.
Additional Considerations:
- Diversification: Spreading your investments across different asset classes mitigates risk and ensures a balanced portfolio.
- Inflation Protection: Consider investments that offer inflation protection, such as TIPS, to maintain purchasing power over time.
- Tax Implications: Consult a financial advisor to understand the tax implications of your investment choices.
- Professional Guidance: Seek professional advice from a qualified financial advisor to create a personalized investment plan tailored to your specific needs and goals.
Investing in your 70s requires a careful balance between risk and reward. By understanding your individual circumstances and exploring the safe investment options outlined above, you can make informed decisions that secure your financial future and ensure a comfortable retirement. Remember, there’s no one-size-fits-all approach, so tailor your investment strategy to your unique needs and goals.
Bank Certificates of Deposit
Bank CDs are proving to be popular in early 2024, as savings rates rise and as long-term investors seek shelter from what they perceive to be high risk in stocks. CD rates of more than 5% are commonplace at banks and other financial institutions these days.
CIBC Bank USA, for example, is offering a 5. 51% annual percentage yield, also known as the annual percentage yield, for a one-year CD with a $1,000 minimum deposit Currently, Marcus by Goldman Sachs is providing a 14-month CD with a 5- 4% APY and a $500 minimum deposit.
As with any investment, choosing the CD that best suits your particular investing requirements can be aided by speaking with a reputable money manager. Thats particularly the case with older investors.
Let’s say you are trying to determine how much money to keep in bank CDs when you are within ten years of retirement. “My recommendation in that case would be to start with 18 to 24 months of liquid funds in high-yield savings or certificates of deposit,” says Bradley Thompson, a financial planner with the New Canaan Group in New York. This can support you during a difficult period in life or a market decline. Beyond that, it is customized for each client and can range from a high level to a low level based on their overall risk tolerance. “.
Some financial advisors advise investing portfolios for 2024 to include a high-yield savings account tier because interest rates are still historically high.
According to Chris Urban, the founder of Vienna, Virginia-based Discovery Wealth Planning, “the interest rate environment is attractive enough that these types of investments can earn meaningful interest with very limited risk.” While rates on high-yield savings accounts vary, they are currently higher than 4% at a number of banks.
According to Urban, “if you need access to your money, choose a high-yield savings account over CDs.” “The variable interest rate offered on a savings account with immediate access to cash is usually a better deal, though it depends on the size of the investment you’re making.” “.
Experts in wealth planning claim that creating a steady, well-balanced investment portfolio can also reduce investment risk.
John Jones, an investment advisor representative at Heritage Financial in Newberry, Florida, states that having an improperly allocated portfolio is the biggest error he sees risk-averse investors making. “An investor’s portfolio has a sweet spot where they can protect a portion of it from market fluctuations without experiencing stress or worry.” “.
For instance, historically, investment portfolio risk has been moderated when a portfolio consisting of 60% stocks and 40% bonds is held, while still providing a good opportunity for substantial returns.
“From 2020 to 2021, prospects for a balanced split of stock and bond investments have improved significantly,” according to Wieting. “At that time, interest rates were much too low to counteract the risks associated with stocks.” As a result, bond investors suffered the biggest loss in history in 2022. “.
The bond market’s overvaluation has now disappeared, marking what economists are referring to as the “Great Reset.”
Wieting observes, “This has negatively impacted most equities in both 2022 and 2023.” “At today’s lower valuations, we believe returns for both asset classes have improved significantly over the next ten years.” Consequently, the benefits of asset allocation should return. “.
Comparative assessments and other editorial opinions are those of U. S. News and haven’t been examined, authorized, or supported in the past by any organizations, including banks, credit card companies, or travel agencies. While some of our partner offers may have expired, the information on this page is current as of the posting date.
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How Do I Start Investing at 60 Years Old?
FAQ
What is the best investment for a 75 year old?
Should a 75 year old be in the stock market?
What is a good portfolio mix for a 75 year old?
What is a good investment for a 70 year old?
The average 70-year-old would most likely benefit from investing in Treasury securities, dividend-paying stocks, and annuities. All of these options offer relatively low risk. What is the safest investment with the highest return?
Should you invest in stocks if you’re younger than 50?
You can consider investing heavily in stocks if you’re younger than 50 and saving for retirement. You have plenty of years until you retire and can ride out any current market turbulence. As you reach your 50s, consider allocating 60% of your portfolio to stocks and 40% to bonds. Adjust those numbers according to your risk tolerance.
What are the best investment options for senior citizens?
Although a “safe” investment has variable meanings for each elderly investor, some of the best investment options for senior citizens do offer lower risk and guaranteed returns when compared to other options. A diversified investment portfolio can help senior citizens avoid unnecessary risk.
Should seniors invest?
However, with safer investment options and a diverse investment portfolio, seniors can have peace of mind and earn money with minimal risk. For example, safe investing can be a good option for seniors looking to pass down money to family members or pay for long-term care. FYI: Investments should play a part in your overall estate plan.