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Investing Strategies for Seniors

The key to successful investing is maintaining a balanced, diversified selection of investments. As the old cliché goes: Don't put all your eggs in one basket.

You can achieve a balanced investment portfolio by spreading your money among the three different types of investment assets. This strategy is called asset allocation. The three types of assets classes are cash and cash equivalents, fixed income investments and equities (stocks). Many portfolios should maintain some weighting in each of these major asset classes; cash for liquidity, fixed income investments to reduce the volatility in your portfolio and equity investments which are required to increase the amount of money you have (net of inflation) which will be needed to improve and maintain your lifestyle requirements.

Mutual funds can be central to any successful investment portfolio. They combine professional management with diversification. By owning one mutual fund you actually have an ownership interest in all the securities the fund invests in. It is almost impossible for most people to achieve this much diversification on their own. There are a wide selection of mutual funds that invest in cash equivalents, fixed-income investments and equity investments.

As you reach your retirement years, you may want to increase the fixed income portion of your portfolio to protect your investments from short term drops in the market. The general rule of thumb often quoted by the press is that you subtract your age from 100 and the result is the percentage of your portfolio that should be in equity funds (ie. a 70 year old should have no more than 30% of his investments in equity funds) However, we believe that each investor is different and the main factor for determining how much of your portfolio that should be in equities is the timeframe until the money is needed. Also, while you should be able to sleep at night, remember that the more you increase the volatility of your portfolio the greater are your potential returns.

You may think that the best way to be financially secure is to take no volatility risks whatsoever with your hard-earned money. But in an effort to eliminate volatility entirely, you give yourself a false sense of security and sacrifice real growth that outpaces inflation and taxes. The real risk in the long term is inflation and taxes and not the shorter term volatility that accumpanies equity investments.

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