You are never too old to have a long term investing strategy
Now and then I meet investors who say they are “too old to consider a long term investing strategy” for their portfolios. Sometimes they support this decision with the time-worn one-liner from Ronald Reagan (or was it George Burns?): “I don’t even buy green bananas anymore.”
There are good reasons to stay out of the stock market, but being “too old to have a long term strategy” isn’t one of them.
If you simply can’t accept any instability in the value of your holdings due to temperamental reasons, that alone is a good reason to sell your stocks, regardless of age. Likewise, if you need every dollar you have for fixed financial commitments, such as coming up with a down payment on a home in the next three years or less.
10 Stocks to Buy and Hold Forever
If you have six or seven of these stocks in your portfolio, well done. These are stocks with staying power. They are companies that can withstand market setbacks—they pay dividends, for one thing—and they’re usually first to move up when the market recovers.
On the other hand, if you have substantially more money than you’ll need for the rest of your life, and you plan to leave the excess to your heirs, there is a long term investing strategy you should consider. It may make sense to invest at least part of your legacy on their behalf. That is, invest based on their time horizon, not yours.
For instance, if your heirs are in their 40s, you should hold at least part of your portfolio in a selection of investments that would suit investors in their 40s. Of course, you’d still want to invest conservatively. But you’d want to take advantage of the many years that 40-somethings have till they reach retirement age.
If you hold your money in T-bills for the last few years of your life, it will generate a minimal return after taxes—you may actually lose money after accounting for taxes and inflation. After your death, it may take months or longer to settle your estate. After that, your 40-something heirs may need time to put your legacy to work, especially if they are inexperienced as investors. They may have passed 50 by the time they get around to investing in an age-appropriate fashion. Missing out on, say, three years of even moderate returns can take a big bite out of the funds they’ll have a few decades later, in retirement. A long term investing strategy later in life is more about leaving a legacy for your loved ones and causes that you care about.
If you’re approaching your 70’s, we have some specific advice for those investors with RRSPs.
Registered Retirement Income Funds (RRIFs) is a great long term investing strategy for retirement
Converting your RRSP to an RRIF is clearly one of the best of three alternatives at age 71. That’s because RRIFs offer more flexibility and tax savings than annuities (see the pros and cons of annuities on TSI Network) or a lump-sum withdrawal (which in most cases is a poor retirement investing option, since you’ll be taxed on the entire amount in that year as ordinary income.
Like an RRSP, a RRIF can hold a range of investments. You don’t need to sell your RRSP holdings when you convert—you just transfer them to your RRIF.
When you hold a RRIF, you must withdraw a minimum each year and report that amount for tax purposes. (You may withdraw amounts above the minimum at any time.) Revenue Canada sets your minimum withdrawal for each year according to a schedule that starts at 7.38% of the RRIF’s year-end value at age 71, reaches 8.75% at age 80, and levels off at 20% at age 94.
If you have one or more RRSPs (registered retirement savings plans), you’ll have to wind them up at the end of the year in which you turn 71.
Investing tip: Use our three-part strategy
No matter how you invest for retirement, you should take care to spread your money out across the five main economic sectors: Finance, Utilities, Consumer, Resources & Commodities, and Manufacturing & Industry.
By diversifying across most if not all of the five sectors, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or investor fashion.
You also increase your chances of stumbling upon a market superstar—a stock that does two to three or more times better than the market average.
Our three-part Successful Investor strategy:
Have you been considering what your long term investing strategy might be now that you’re in retirement? What steps have you taken? Share your experience with us in the comments.