Is it too late to invest?
Often, it’s not too late for the people asking this question, and it is too late for those who don’t think to ask. There are two aspects of “too late to invest.”
- I’m getting old. Is it too late to invest?
- I found this hot investment trend. Is it too late to invest?
We are going to look at investing in old age today, and investing trends next week.
I’m getting old. Is it too late to invest?
Let’s look at two stages that people ask me this: nearing retirement and nearing the end.
I’m nearing retirement. Is it too late to invest?
Isn’t stock market investing for younger people? Don’t you need lots of time to recover from market losses? Don’t you need decades for compound returns to work? Do I still have time to invest for retirement?
People close to retirement who believe it may be too late to invest suffer from one fatal error: they believe retirement is the finish line.
Retirement is not the finish line. It is mile marker 13.1 in a marathon.
Are you planning to spend all your money in the first year of retirement? Are you expecting to die in year number two? Of course not!
You should expect a plan for a three-decade retirement. During that time, the cost of everything you want and need to buy will double or triple. You still have a long ways to go, and you will need the long-term growth of equities to rise to the challenge of inflation.
This is the fundamental concept of my book, 3D Retirement Income. Episode 50 discussed it, so you can go back and listen to that one. You can also pick up a copy on Amazon, or get one for free by becoming a RetireMember at RetireMentorship.com.
Let me be clear. If you are nearing retirement, it is NOT too late to invest. In fact, you absolutely must invest in equities.
I’m nearing the end. Is it too late to invest?
Those in their late 70s, 80s, and 90s, realize that they were mistaken when they thought they were old in their 50s and 60s. While some think they are too old to invest because they are near retirement, others know they are truly old when their life is reaching the final stage.
Perhaps you believe you have only fifteen, ten, or less than five years left in your life. Is it too late then?
The question generally has this fear behind it. What if I invest in the stock market and I lose all my money right at the end? Perhaps I should keep it all in CDs and fixed income in the end to keep it safe.
Let’s look at to factor. Whether you still need the money for yourself (and your spouse), and what would happen to your children’s inheritance.
Your Retirement Needs in the Final Years
If you are following the 3D Retirement Income model, you should have a sufficient war chest of fixed income set aside for stock market downturns. It doesn’t matter if there is a big market drop in your final years of life. The model has you covered! Whether the market tanks eight years before you pass, four years, or in the last year of your life, you will be able to maintain your income until the very last paycheck is received.
The only way to turn a temporary decline into a permanent loss is to sell your equities when they are down. We don’t do that here. We have a sufficient pool of fixed income to protect our income during stock market downturns.
The right plan will meet your retirement needs until the end, and thus it is never too late to invest in equities if following a plan.
We generally don’t know if we are eight, four, or one year from our passing (thank the Lord). You may believe you only have a couple of years left, but then continue for five or more! During that time, you will still want and need the growth of equities.
What About My Children’s Inheritance?
Perhaps you’re unsure if you should still invest in equities because you don’t want to lose all that you’ve built and want to give away. Many folks aspire to bless their children and grandchildren, churches, and charities. What if the market drops by 40% right before I die, and all that giving gets cut in half?
Again, the only way to turn a temporary decline into a permanent loss is to sell your equities when they are down. Your children will only lose 40% of their inheritance if they liquidate it at your death. Your churches and charities will only lose 40% if they do the same.
When you and your spouse pass, your retirement accounts can be transferred into Inherited IRAs and Roth IRAs. The equity funds in your retirement accounts can pass directly to these inherited accounts without being sold. Similarly, any non-retirement funds can be passed directly to any person or entity intact. Investments do not need to be sold when you pass away unless there are some extenuating circumstances.
If the market dropped by 40% and you passed away at the bottom, your children (or whomever you chose as your beneficiaries) will get the accounts while their value is 40% down. But they only lose that 40% if they liquidate. You only lose money when you sell at a loss. If they simply hold on to the funds until they recover and sell them later, they will not experience the loss!
Plus, if you’re following 3D Retirement Income, you should have some fixed income that has not plummeted by 40%. If your children or charities need to use some of the inheritance or gifting immediately, they will be able to without suffering a high loss. They can wait until the rest recovers before absorbing the full loss.
It is never too late to invest according to a plan in a diversified portfolio of equities with a sufficient pool of fixed income. Indeed, if you have not done so yet, please do, with all haste.
This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are the opinions of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.