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Personal investing

Investment challenges older investors face

Older investors face a host of challenges entirely different to those faced by their young selves. Sandy McGregor offers a wise perspective for those of this age and stage. 

At some point as we age comes the realisation that we too are going to die. When we are young death is almost a theoretical idea that does not influence our thinking or the way we behave. We live as if we are immortal. A sudden awareness that this is not the case has a profound effect on how we conduct our financial affairs. We look at things differently and our agendas change.

Our attitude to risk changes

The young can take risks knowing that if things do not work out as hoped they can always start again. Time is on their side. Older investors must live with the reality that it will be difficult to recoup significant financial losses. They are either approaching or have passed the age of retirement. Most do not have an income or resources large enough to recover significant losses from increased savings. Most older investors are instinctively cautious.

Access to information changes

One of the problems many face when retiring from active business is their sources of information dry up. When I managed Allan Gray’s individual client portfolios on occasion a newly retired successful businessman would approach us to manage his share portfolio. I would look at his existing portfolio and ask: “Why do you need us? These are similar shares to what we would buy.” “Yes,” would be the reply, “But when I was involved in business, I had a sense of what was going on. Following my retirement, that is no longer the case, and I lack the information required to invest successfully.”

If anything, the plethora of information on the internet makes investment even more difficult than it was. Success often depends on being different, but it becomes increasingly difficult to stand aside from the widely held consensus communicated with such authority and in such detail. With age good financial advice provided by someone one trusts becomes increasingly important. It is not that one must follow such advice, but few are qualified to manage their wealth on their own.      

Priorities shift

As accumulating wealth is largely a matter of compounding over time, most wealth lies in the hands of older people. The issue of inheritance looms large. While there are a few curmudgeons hostile to inherited wealth, most parents have a natural desire that their assets should in time pass to their children. As they get older the successes and failures of their children become more important than their own. For those in a position to do so, supporting their children as they enter the expensive stages of their lives, buying houses, finding partners and raising families, becomes a priority. Financial planning becomes increasingly focused to this end.

The biggest challenge that most older investors face is that they must live on what they have got. Unlike the young, they cannot assume that somehow they will make lots of money which will see them right. They are caught in a conundrum where their future expenditures are increasing due to greater longevity, but investment returns are in a secular decline. This is not only a South African problem. It is a global issue. There are few if any countries which can claim that they have a fully funded pension system. How this is to be resolved will be one of the most important political challenges of coming years.

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