Investing for Older Investors: Mutual Funds, Stocks and Bonds, Oh My!
By Lori Schock, Director of the Securities and Exchange Commission’s Office of Investor Education and Advocacy
Just as Dorothy, the Tin Man, and the Scarecrow walked through the woods contemplating the unknown chanting “Lions and tigers and bears, oh my!” you may be feeling the same kind of anxiety as an older investor deciding which investment products suit you best. And to continue with The Wizard of Oz theme, “It’s always best to start at the beginning.” And, the perfect first step for dealing with the unknown is to educate yourself by checking out the resources available for older investors on the SEC’s website for individual investors, Investor.gov.
Investment needs change as you age. When you first started investing, you may have chosen investment products that were more risky. After all, as a younger investor you had more time to recover from any investment losses and had an opportunity to benefit from any gains. However, as time goes by and you are closer to retirement, you may be more likely to look for investments that have a positive yield, produce a reliable stream of income, and are easy to sell. If you are considering making changes to your investment portfolio or it’s simply time to give yourself a quick investment check, Investor.gov’s Guide for Seniors: Protect Yourself Against Investment Fraud can provide all sorts of information geared toward older investors.
The first thing you should do, if you haven’t already, is to make sure you really know your investment professional. You can check out an investment professional’s background and qualifications by going to Investor.gov.
Discuss your investment goals with your financial professional. Ask yourself questions, such as “What am I saving for? How do I want to live in my retirement?” Just as everyone will answer these questions differently, every older investor has different investing needs. Unique factors to consider when picking investment products include: age; employment; other sources of income; expenses; tax status; risk tolerance; liquidity needs; and investment time horizon.
It is critical to understand your investments at any age, but it is especially important as an older investor. Investigate the products you are considering and ask questions. You can also obtain investment disclosure documents, such as a prospectus, annual reports and mutual fund shareholder reports on the SEC’s EDGAR database. Check to see if the products you are considering align with your investment goals.
As an older investor, be cautious when making a change to your investment portfolio. Consider whether a new product makes sense, especially if it means selling current investments. You should consider transaction costs, including commissions and fees, sales loads, surrender charges and tax implications, when selling a current investment and buying a new one. Make sure the benefits outweigh the costs as fees and other expenses can really add up.
There are many investment choices—traditional products, such as mutual funds, stocks, fixed income investments (bonds) and ETFs (exchange-traded funds). Non-traditional products can be more complex, and although they can provide higher returns, they also can carry greater risk. Everyone’s risk tolerance is different so make sure you pick investments that you are comfortable with and that best fit your needs. And, don’t forget to find out about any fees, how your investment professional gets paid, and whether payment is dependent on which product you purchase.
While a crystal ball may predict the future in the movies, it won’t work in real life. That’s why research and education is key to following your own yellow brick road home to a wise investment future.