How much should 65-year-olds invest in the stock market?

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Watching your investment portfolio too closely can be a recipe for disaster, but so can neglecting to modify it as you age. While everyone would like to have the largest possible retirement, you will need to build your portfolio based on your own individual investment goals and risk tolerance – and these change with age. When you are young, you can better afford to experience the ups and downs of the stock market while trying to achieve the highest total account value. But when you reach retirement age, this may not be true.

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Most seniors need to shift at least some of their account balance to income-producing investments by the time they retire to supplement Social Security and any other sources of income they may have. Should you even have money 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 are 65 years old, in this model you should own 35% of the stock because 100 minus 65 equals 35. However, as Americans have started living longer, many of these models have raised the starting number to 110 or even 120, which means that a 65-year-old should own about 45% or 55% of the shares.

Respected investment firm T. Rowe Price has a model closer to this more modern version of the allocation, recommending that investors over 60 have 45% to 65% in stocks, 30% to 50% in bonds, and 0% to 10% in cash. Charles Schwab recommends an allocation of 60% stocks, 35% bonds and 5% cash for investors aged 60-69.

Some investors may instinctively feel that this is too large an allocation because they have been told for years that they should reduce or even eliminate risk from their portfolios as they approach retirement. However, this may cause long-term financial problems. Since many seniors will now live in retirement for 25 years or more, failure to appropriately allocate to stocks could result in them becoming underfunded accounts. If you have a 25-year investment streak, avoiding stocks altogether may be a mistake because the market has never had a 20-year period where it lost money.

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What types of stocks should you own if you are 65?

While most older investors should still own a certain number of stocks, that doesn’t mean their portfolios should be as aggressive as they were when they were younger. For example, in your 20s, you may want to speculate a bit on high-growth stocks, such as biotech stocks or emerging technology companies. However, your need for hypergrowth should pass by the time you reach age 65. At this point, while you don’t want to completely give up on growth, your stocks should generally be trending toward the blue-chip variety.

A solid option for many seniors is investing in high-dividend stocks, most of which are considered blue chips. Generally, these types of companies pay solid and growing dividends, maintain strong positions in their industries, and have almost zero chance of a catastrophic end. With dividend stocks, you can live off your income stream without having to worry so much about day-to-day fluctuations in value because they provide an ongoing return. Over time, a well-selected blue chip portfolio should also grow in value.

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

What about your wallet balance?

For the non-stock portion of your portfolio, you should choose a bond allocation that meets your income needs and risk tolerance. For example, if you have all the income you need and want bonds to keep your account safe, you can buy low-yield, high-quality investments such as short-term Treasury bills. If you’re looking for a larger amount of income, you may have to accept a little more risk. For example, long-term bonds and preferred stocks can increase your income, but their value will fluctuate more in response to changes in market interest rates. Higher-yielding mutual funds and ETFs can generate even more income through the use of leverage, but this again involves accepting more risk. Therefore, it is worth talking to a financial advisor to obtain the right balance between risk and reward, adequate to your financial needs.

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This article originally appeared on How much should 65-year-olds invest in the stock market?