To invest or not to invest, that is the question!
Retirees often face the dilemma of investing and bearing the risk of losing their retirement savings or keeping their money and missing out on the potential gains.
As a retiree myself, I understand the struggle of course. While all investments involve risks, avoiding investing altogether also comes with risks, such as financial risks arising from longevity and inflation. Many countries have been weighed down by high inflation in recent years. We should never underestimate the effect of inflation, as it can erode our purchasing power quietly, shrinking our savings over time. To mitigate inflation risk, retirees may seek to grow their retirement savings through investments.
Relying on your children and pension may not be feasible for retirement today. Instead, many believe that it is important to have passive income. Without a stable income after retirement, the retirement savings may not be able to last for 20 to 30 years. Like many retirees, I have invested in dividend-paying stocks, such as utility and bank stocks that generate passive income. However, the dividends are not guaranteed. In the past few years, some listed companies, including some traditional dividend-paying stocks, had trimmed or suspended their payouts. When selecting these stocks, you should consider both the dividend yield and the earnings outlook of the companies to evaluate their ability to maintain future dividend payments. You should also pay attention to any change in their distribution policies. Meanwhile, there are many other ways to generate passive income, such as renting out properties, placing fixed deposits, or, like many young people, creating online content on social media platforms like blogs, YouTube and Patreon to earn advertising income.
What should retirees do if they need to invest but cannot afford to lose their retirement savings? Risk management is always the top priority, especially for retirees. Long-term investment is more suitable for the retired as they can enjoy capital growth through the compound interest effect, and mitigate short-term market volatilities. Also, they should avoid short-term trading and instruments, such as day trading, speculative trading, derivative products like warrants and callable bull/bear contract, and margin trading. Furthermore, diversification, adhering to a stop-loss strategy and avoiding unfamiliar investment products also play a key role in managing investment risks.
Investment is an integral part of financial or retirement planning. Before investing, you should assess your financial situation, including the capital available and your financial objectives. You may want to use this Retirement Planner to help develop your retirement budget and review your financial situation.
