A large proportion of over-55s in Britain aren’t investing their money in the stock market. According to research from wealth management platform Stratiphy, only around 23% in this segment of the population have invested money in stocks over the past 12 months (compared to 47% of those aged 18-34).
Now obviously, many people aged 55 or over may be thinking about, or already in, retirement. But here’s why not investing in stocks at this age could be problematic.
A major risk for everybody
When it comes to financial/retirement planning, a major risk we all face today is ‘longevity risk’. This is the risk of outliving our savings.
There are two key issues at play here. The first is that many of us are living much longer than previous generations. Today, a lot of people are living well into their 90s, meaning that substantial savings are needed for the long term.
The second is that the cost of living is continually rising. So the purchasing power is constantly being eroded.
Note that if inflation was to average 3% for the next 30 years, £100,000 of savings in 2025 would have a purchasing power of around £40,000 in today’s money by 2055. That shows how destructive inflation can be to wealth.
Put these two issues together and it could be quite risky not to invest in the stock market at 55. Because if someone’s money isn’t growing, they could face a significant financial shortfall later in life, assuming they don’t have a huge savings pot today.
A lower-risk investment
It’s worth pointing out that someone doesn’t have to take on a huge amount of risk to invest in the stock market. Today, there are plenty of lower-risk products and products available that could generate solid long-term returns without a lot of volatility.
An example here is the City of London Investment Trust (LSE: CTY). This invests in large, blue-chip UK companies (eg HSBC, Shell, Tesco, etc) with the aim of providing long-term growth in income and capital.
Over the last decade, it’s returned around 7% a year, which isn’t bad when you consider that over this timeframe markets have experienced a few bouts of turbulence (Brexit and Covid-19).
Note that a large chunk of these returns have come from dividend payments. Last year, the trust paid out 20.8p per share in dividends, which translates to a yield of about 4.2% today (better than most UK savings accounts are paying right now).
I’ll point out that the trust has increased its dividend payout for 59 consecutive years. If it can continue increasing its payout, it could offer inflation protection for investors.
Now, this product’s going to be riskier than cash savings. If stock markets experience a wobble, the value of an investment could fall. All things considered however, I believe this product is well suited to the over 55s with a long-term view.
To my mind, it’s worth a look as part of a diversified portfolio.
