Many people assume that stocks are only for the young, and bonds are best for when you’re older. They’re wrong, though, because there’s a good case for retirees maintaining some stock holdings. It’s true that you should invest only long-term dollars in the stock market, as it can fall sharply and remain down for one or more years. But you don’t necessarily become a short-term investor at retirement. If you retire at age 65, you may well live 30 more years. It would be a shame to be entirely out of the stock market during all that time.
After all, you won’t need to access all of your nest egg the moment you retire. You’ll tap a little at first, and more the next year, and so on. Some of it will remain invested for 10 or 20 or more years.
As a retiree, you’ll want your nest egg to grow, if possible, and stocks are one of the best tools for that. Bonds have their place, offering fixed income, but according to research by business professor Jeremy Siegel, stocks have outperformed bonds 78 percent of the time over all 10-year periods between 1871 and 2012, 96 percent of the time over all 20-year periods and 99 percent of the time over all 30-year periods! Growth is important because of inflation, which will shrink the purchasing power of your savings over time. Retiring with $500,000 in the bank might seem terrific, but if inflation averages 3 percent annually over the next 25 years, that egg will only have the buying power of $233,500 in today’s dollars. A growing nest egg can offset the damage wreaked by inflation.
Retirees also typically require income from their investments during their nonworking years. Dividend-paying stocks can be powerful income generators. A stockofferinga3percentyieldmay shield your shares from inflation with its dividend alone. Stock price appreciation will be icing on the cake. Better still, healthy and growing companies often increase dividends regularly.
Learn more about investing and retirement strategies at fool.com/retirement and finance.yahoo.com/retirement.
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