5 Investing Mistakes Boomers Should Avoid in Their 70s
Written by
Karen Doyle
Edited by
Levi Leidy
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Like many things, investing can be easier when you’re young. If you invest and the market goes down, you have time to make up for those losses. Once you get into your 70s, however, it may be time for a slightly different approach.
Here are five investing mistakes baby boomers will want to avoid in their 70s.
The ‘Next Big Thing’
You might think that, once you get to your 70s, you’d have seen enough flash-in-the-pan investing ideas to know that jumping on the bandwagon is a risky proposition. But sometimes the thought of huge returns for a relatively small investment sounds too good to ignore. After all, who wouldn’t love the idea of being able to live out their retirement years in luxury? And if bitcoin is enjoying big returns, why not?
The fact is that the “next big thing” in investing often goes through a lot of volatility before settling into a more predictable pattern of gains — if it ever does. And older investors don’t have time to make up the kinds of big losses that hot new stock may produce at first.
Even though past performance is not necessarily indicative of future results, investors in their 70s are better off sticking with tried-and-true investments that have a track record of solid performance.
Trying To Time the Market
Older investors can feel a sense of panic if they see the market drop, and that’s certainly understandable. But they also need to remember what got them to where thy are today in terms of investing philosophy. They probably invested regularly over time and reinvested their dividends.
During retirement is no time to start doing anything differently, including trying to time the market. The market’s ups and downs may seem more serious than they were when you were younger, but they’re really not. Trying to move your investments around in response to market fluctuations is often a losing proposition.
Taking Too Much Risk
Another investing mistake that older investors can make is trying to “make up time” by making riskier investments than their age would indicate. A common rule of thumb is to subtract your age from 100, and that is the percentage of your portfolio that should be in stocks. The rest should be in bonds or cash. So, for a 70-year-old, you would have 30% in stocks and 70% in bonds and cash.
Using mutual funds instead of individual stocks for the “stock” portion of your portfolio will further diversify your investments and reduce your risk even further.
Not Taking Enough Risk
Some boomers may make the mistake of taking too much risk, while others may err on the side of taking too little. Putting all your savings into a savings account at the bank, or, worse yet, keeping it in cash, will cause you to lose purchasing power over time, eroding the savings you’re worked your whole life to accumulate.
That said, you also need to be able to sleep at night. So if you cannot stomach the idea of having your savings in investments that could lose money, there are options that will help you at least maintain your purchasing power. Treasury bills and high-yield savings accounts are good places to keep your cash if you want to take virtually no risk.
Ignoring the Sequence of Returns
If you’re in your 70s, you probably know quite a bit about how to save for retirement. What you may not know is how to spend in retirement. Once you walk out the door from work for the last time, you need to focus on how to make that money last for the rest of your life. Once of the things that has a big impact on this is the sequence of returns.
The sequence of returns refers to the effect that market ups and downs will have on your investment portfolio once you start withdrawing money from it. Simply put, if your investments have a few down years when you first retire, you’ll have a much more difficult time than if you have a few good years at first.
Here’s an example. Suppose Jack and Jill retire with a $1 million portfolio. They need to start spending some of that money to fund the retirement lifestyle they want. There’s nothing wrong with that — that’s what they’ve saved for. They decide to withdraw $50,000 per year, increasing that by 3% each year for inflation.
The table below shows two different scenarios for Jack and Jill. The first shows their balance each year when they had positive returns for the first few years, and some negative returns later on. The second shows negative returns at the beginning, with positive returns in later years. It’s important to note that the average annual return in both scenarios was 6%.
| Year | Return (Positive at First) | Balance | Return (Negative at First) | Balance |
| 1 | 12% | $1,070,000.00 | -18% | $770,000.00 |
| 2 | 7% | $1,093,400.00 | -10% | $641,500.00 |
| 3 | 24% | $1,302,771.00 | 10% | $652,605.00 |
| 4 | 2% | $1,274,190.07 | 20% | $728,489.65 |
| 5 | 0% | $1,217,914.63 | 30% | $890,761.10 |
| 6 | 15% | $1,342,638.12 | 6% | $886,243.07 |
| 7 | -9% | $1,162,098.07 | 11% | $924,027.19 |
| 8 | -3% | $1,130,291.91 | 1% | $853,293.22 |
Even though Jack and Jill earned an average return of 6% in both of these scenarios, they would have $276,998.69 less in their portfolio after eight years if they had negative returns at the beginning, even though they had a 30% return in year five.
No one has control over the market, and it’s impossible to predict what it will do in the future. But understanding these risks can help you make better investing and spending decisions when you’re in your 70s and beyond.
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